The Nikkei, or Japan 225, is the oldest Asian stock index. It was introduced in May 1949, around the time when the economy of the country began to revive after World War II. The index was named after the Japanese Economic Newspaper, known as the Nikkei, which has been calculating the index since 1950.
Initially, the average value for 225 members estimated at ¥176.21. Today the Nikkei is still denominated in Japanese Yen and is still comprised of the original number of constituents – 225.
So, how is the index made up?
Basically, the placement of a stock in the Nikkei depends on its market price. Obviously, the higher the price, the higher the weighting of the stock and the more influence it has on the whole index value.
The Nikkei-225 Stock Average has an American twin brother – the Dow Jones Industrial Average Index. They are identical in that both are price-weighted, rather than capitalisation-weighted.
Keep in mind that the composition of the index can change. It is reviewed every year in September and changes, if any, are introduced in October.