History
Charles Dow's 1896 Dow Jones Industrial Average simply averaged prices, but Standard Statistics' 1923 index and the S&P; 500 launched in 1957 weighted companies by size. Korea's KOSPI started on 4 January 1980 with total market cap set to 100. In 1992 Eugene Fama and Kenneth French reported a size effect—small caps had outperformed over the long run—making market cap a core way to classify stocks.
Calculation and classes
A 50,000-won share with 100 million shares gives a 5-trillion-won market cap. In the US, above about $10 billion is large-cap, $2–10 billion mid-cap and below that small-cap. Most indexes now use free-float cap, excluding hard-to-trade insider stakes, and index funds hold stocks in those proportions.
Misconceptions
A stock split lowers the price but multiplies the shares, leaving market cap unchanged. Market cap ignores debt, so for takeover value use enterprise value, and judge price against profits with EPS and P/E.
FAQ
- Is a large market cap a safe company?
- Usually more liquid and less volatile, but financial health must be checked separately.
- Is market cap the same as enterprise value?
- No—enterprise value adds net debt to market cap.
Sources reviewed: 2026-10-26
References
- S&P; Dow Jones Indices. (2024). S&P; U.S. Indices Methodology.
- Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. Journal of Finance, 47(2), 427–465.
- 한국거래소. (2024). 유가증권시장 업무규정.