Comment by simonh

Regarding stock market returns, I'm curious if the calculated returns on stocks as a class properly takes into account failed companies. Take the FTSE 100. If a mid-tier one of those companies fails (Lehman's collapse for example) the FTSE 100 doesn't lose 1% of it's value. Instead the 101st most valuable UK company takes it's place. Does anybody know how well measures of stock market returns take into account effects like this? Or are they measured on the total market value of all traded equities?