Each stock’s influence comes from its share price, not the size of the company. A $400 stock moves the index far more than a $40 stock, even if the $40 company is worth ten times as much. A “divisor” is adjusted for splits so the index stays continuous.

Examples: Dow Jones Industrial Average (DJIA, since 1896), Nikkei 225. Quirk: a stock split instantly shrinks a company’s weight without anything fundamental changing.

Each company’s weight is its total market value (share price × shares outstanding). The biggest companies dominate; a handful of mega-caps can drive most of the move. This is the most common modern method.

Examples: S&P 500, Nasdaq-100, most national indexes. Quirk: tends to concentrate in whatever is already largest, so a few names carry the index.

A refinement of cap-weighting: only the shares that actually trade freely count. Shares locked up by founders, governments or insiders are excluded, so the weights reflect what the market can really buy.

Examples: the modern S&P 500 and MSCI indexes use free-float. Why: it better matches what an investor could replicate.

Every member gets the same weight, regardless of price or size. The smallest company matters just as much as the largest. Because prices drift apart, the index must be rebalanced periodically back to equal.

Examples: S&P 500 Equal Weight (ticker RSP). Tilt: leans toward smaller and mid-size names; often behaves differently from the cap-weighted version of the same list.

Weights are set by a company metric instead of price or size — revenue, earnings, dividends, book value, or a chosen factor like low volatility or momentum. The aim is to tilt away from simply “biggest = most.”

Examples: dividend-weighted and revenue-weighted ETFs, smart-beta indexes. Why: tries to capture a specific style rather than the whole market as-is.