What do price weighted stock market indices primarily reflect?

Price-weighted stock market indices primarily reflect the price per share of the included companies. In this type of index, stocks are weighted according to their share prices, meaning that a company with a higher stock price has a more significant impact on the index's movement than a company with a lower stock price.

For example, if two companies are included in a price-weighted index, and one company's stock price is significantly higher than the other's, any change in the higher-priced stock will disproportionately affect the index. This method places a greater emphasis on companies with higher share prices, irrespective of their overall market capitalizations or the total value of the companies.

Understanding this concept is essential because it differentiates price-weighted indices from other types, such as market capitalization-weighted indices, where the total market value of each company is considered instead of just the stock price. This distinction highlights the focus on share price in price-weighted indices and illustrates their unique behavior in reflecting market trends.