Which one of the following four statements about equity indices is INCORRECT?

Which one of the following four statements about equity indices is INCORRECT?
A . Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.
B . Equity indices do not trade in cash form, rather, they are meant to track the overall performance of an equity market.
C . Capitalization-weighted equity indices are not generally considered better to track the performance of an overall market.
D . Price-weighted equity indices give greater weight to shares trading at high prices.

View Answer

Answer: C

Explanation:

Equity indices are numerical calculations that reflect the performance of hypothetical equity portfolios.

They are designed to track the overall performance of an equity market and do not trade in cash form.

Capitalization-weighted indices, which weight stocks by their market capitalization, are generally considered effective in tracking the performance of the overall market. Therefore, the statement that they are not generally considered better is incorrect.

Price-weighted indices give greater weight to shares trading at high prices, reflecting their price movements more heavily in the index.