What is a ‘Constituent’

A constituent is typically a stock or company that is part of a larger index, such as the S&P 500 or Dow Jones Industrial Average. The aggregate of all the constituents make up an index, and generally each constituent has to meet certain requirements pertaining to market cap, market exposure and liquidity, and be selected to be included in an index.

BREAKING DOWN ‘Constituent’

Individual constituents make up the largest market indexes in the United States, including the Dow Jones Industrial Average, the Dow Jones Transportation Average. the Nasdaq Composite Index and the New York Stock Exchange (NYSE).

Indexes serve a number of important functions in the economy, including tracking the performance of particular markets or sectors of the stock market or economy, giving shape and substance to index, mutual and exchange-traded funds (ETFs), and providing investors and portfolio managers with benchmarks to evaluate their own decisions. By gaining entrance into a market index, a constituent stock or company…