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Asraf HossainCourse: Business statisticsCourse code: STA-202

Index numbers are meant to study the change in the effects of such factors which cannot be measured directly

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Use of Index NumberIndex numbers are commonly used statistical device for measuring the combined fluctuations in a group related variables. If we wish to compare the price level of consumer items today with that prevalent ten years ago, we are not interested in comparing the prices of only one item, but in comparing some sort of average price levels.

Weighted Index Number

Unweighted Index Number

Simple Index Number

Paasche’s Price Index

Fisher Ideal Index

Simple average Price Index

Simple Aggregate Price

Index

Laspeyres Price Index

Classifications of Index Number:

Unweighted index numberA simple arithmetic or geometric average used to calculate stock indexes. Equal weight is invested in each of the stocks in an index with equal dollar amounts invested in each underlying stock. Because the stocks are equally weighted, one stock's performance will not have a dramatic effect on the performance of the index as a whole. This differs from weighted  indexes, where some stocks are given more weight than others, usually based on their market capitalizations.

Fisher’s Ideal Index Number:Geometric mean of Laspeyre’s and Paasche’s index numbers is known as Fisher’s ideal index number. It is called ideal because it satisfies the time reversal and factor reversal test.

Po1= √(Laspeyres Index)×(Paasche’s Index)