In the financial market, an index is used as a standard to measure asset class performance.
- Indices are most commonly used to measure a basket of securities to reflect designated market performance, i.e. the S&P 500 Index is widely used for the US;
- Indices can also used to measure sector performance or an asset type, like the Property Index and the China Enterprise Index within the Hang Seng Index Family.
In the FX Market, the US Dollar Index is the most well-known index reflecting US dollar performance relative to a basket of currencies. When market volatility increases, market participants will pay close attention to the CBOE Volatility Index a.k.a VIX Index. The CRB Index is also used to reflected commodity performances. Different parties including the government, universities, large research institutions construct different types of indices to measure economic performances including CPIs, the University of Michigan Consumer Sentiment Index, the Caixin Manufacturing PMI.