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The study aims to analyze and select a suitable index for the Saudi Arabian stock market. It first reviewed the international indices and the different methods used to compute them. Three know indices were then selected: the value weighted, the equally weighted arithmetic and the geometric indices.

These indices were used to examine the impact of five sectors (General, Financial, Industrial, Services and Agriculture) as defined by the Saudi Arabian Monetary Agency. The findings indicated that there is a high degree of correlation between the three types of indices for any given sector. However, there exists a significant difference between the indices of the various sectors due to sector-specific factors. Therefore, one needs an index for each sector to monitor the performance of these markets in addition to the general market index.