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Chapter 8 — THE NASDAQ COMPOSITE INDEX
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THE NASDAQ COMPOSITE INDEX

THE NASDAQ COMPOSITE INDEX

The Nasdaq was originally the National Association of Securities Dealers Automated Quotation and was abbreviated NASDAQ.

The Nasdaq was the first automated stock exchange where trades and pricing information could be handled electronically. It is now the second largest stock exchange in the United States behind the New York Stock Exchange (NYSE). The word “Nasdaq” is officially recognized as a proper noun and not an acronym.

 The Nasdaq Composite Index

MARKET AND INDEX

The Nasdaq is traditionally the market for tech companies, but other types of companies are also traded there. When you see the Nasdaq on a news report next to the Dow and S&P 500, it is the composite index of the Nasdaq stock exchange that is being listed. The Nasdaq Composite Index includes all stocks traded on the Nasdaq that are not ETFs, derivatives, preferred shares, funds, or debentures.

The advantage of the Nasdaq Composite Index in predicting the economy is that it tracks the entire Nasdaq exchange, but the disadvantage is that it does not track companies from other exchanges. The Nasdaq Composite Index and Market also include companies outside of the US, so the Index is affected by foreign economies more directly than the Dow or the S&P. Apple, Microsoft, Facebook, Google, and Bank of America are all traded on the Nasdaq.

NASDAQ METHODOLOGY

The Nasdaq Composite Index uses a market capitalization weighting methodology. The Nasdaq Composite Index value equals the total value of the share weights of each of the constituent securities, multiplied by each security's last price. This total is then adjusted by dividing by an index divisor, which scales the value to a more appropriate figure for reporting purposes. The Nasdaq Composite Index is calculated continuously throughout the trading day, but it is reported once per second, with the final confirmed value being reported at 4:16 p.m. each trading day.

Quiz

In a day where the Dow has gone down but the Nasdaq has gone up, what could be happening in the market?

Correct
Incorrect
0/76 (0%) Correct
  • 1
    US Blue Chip companies have lost value but foreign companies on the Nasdaq are seeing a rally.
  • 2
    Investors have moved money in to tech stocks and away from other industries
  • 3
    Companies that do not correlate with each other are the market movers for the day
  • 4
    All of the above
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