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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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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