In a price-weighted equity index, how is each stock weighted?

In a price-weighted equity index, each stock is weighted according to its absolute share price. This means that stocks with higher prices have a greater impact on the index's overall value compared to those with lower prices. As the price of a stock in the index changes, it directly influences the index's performance.

For instance, if a stock priced at $100 increases to $120, that increase has a greater significance for the index than a stock priced at $10 increasing to $12, even though both have increased by the same percentage. Because of this pricing mechanism, the index reflects the price movements of these individual stocks rather than their market capitalization or other fundamentals.

In contrast, other weighting methods like equal weight or market capitalization would not rely solely on share price for determining a stock's influence within the index.