The majority of stock market indices are calculated by taking the market capitalization of the index's constituent companies into account. Because this approach gives larger market capitalization firms a higher weighting, the performance of these firms has a greater impact on the value of an index than that of smaller market capitalization firms. Certain well-known indices, such as the Dow Jones Industrial Average, are calculated with price considerations in mind (DJIA). Because this strategy gives companies with higher share prices a higher weighting, changes in their values will have a greater impact on the price at which an index is currently trading.

Stock market indices are calculated using different methods, with the most common being price-weighted, market-cap-weighted, and equal-weighted approaches. In a price-weighted index (like the Dow Jones Industrial Average), stocks are weighted based on their share prices, meaning higher-priced stocks have more influence. A market-cap-weighted index (such as the S&P 500) calculates each stock's weight based on its market capitalisation (share price × outstanding shares), giving larger companies more impact. An equal-weighted index assigns the same weight to all stocks, regardless of price or size. Some indices also use free-float adjustment, considering only publicly traded shares. The index value is derived by averaging the selected stocks and adjusting for corporate actions like stock splits. These methods help investors track market performance and compare different sectors.