Price-weighted index

A price-weighted index gives each company influence based on its share price rather than its overall size, so a $500 stock carries far more weight in the index than a $50 stock, even if the cheaper stock's company is many times larger by market value.

The Dow Jones Industrial Average is the best known example still in wide use, a holdover from a simpler era of index construction before market capitalization data was easy to calculate and track. A stock split can distort a price-weighted index in an odd way: a company that splits its stock in half sees its influence over the index cut in half too, even though nothing about the size or value of the underlying business has changed.

Because of these quirks, price weighting has mostly fallen out of favor for indexes created since, with market-cap weighting now the standard approach for new benchmarks.