How the Market gets Avaraged ?

#1
Dear TJ Members,
Can any one tells how the market avarage is calculated ?
Its always seen that what ever is nifty or sensex closing at 3:30 it gets modified after 1:00 hr.
How it is done and why it is necessary ?

Thanks
 
#3
Market Averages are calculated on free float methodology.
Here is a very short description for Sensex.
SENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization" methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX on a continuous basis.
For Nifty methodology please find the enclosed pdf file from Nifty website http://www.nseindia.com

:)