What is a Market Basket?
A market basket is a group of items that simulate the overall price movements in a market.
How Does a Market Basket Work?
At an economic level, a market basket is a permanent set of goods and services that are bought and sold as staples in a functional economy. Analysts and policymakers use average price changes in a market basket as the primary gauge of inflation. For example, the Consumer Price Index (CPI) is based on a market basket of consumer goods and services.
In the financial markets, a market basket includes a group of widely-held securities. An example would be the Dow Jones Industrial Average (DJIA).
Why Does a Market Basket Matter?
A market basket serves as a benchmark for measuring the price performance of other items in a market. The quality of a particular market basket is apparent in how closely the behavior of items in a market basket resembles the behavior of the overall financial market or the economy as a whole. Market baskets give investors and policy makers a simpler way of measuring and predicting market trends.
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