So I think you are right about issues existing; survivorship bias and limitations/concerns when using an index as a proxy. These are usually mentioned in the fi

So I think you are right about issues existing; survivorship bias and limitations/concerns when using an index as a proxy. These are usually mentioned in the fine print hidden at the bottom if they are acknowledged at all. The FTSE 100 does not measure returns on stocks as a class. But it does take into account failed companies. The FTSE 100 measures returns of 100 market cap weighted companies. How FTSE 100 handles things like dividends, adding or removing companies, historical data...There are hundreds of pages of explanations, rules, formulas, disclaimers and other methodologies at the bottom on the website: http://www.ftse.com/products/indices/uk http://www.ftse.com/products/indices/uk If a company represented 1% weight of the index (somewhere around the 30th largest company might be ~1%). If that company suddenly failed and it's stock price dropped to a tiny fraction of a pence (or basically zero), then yes the index will drop 1% in value. Company sized #101 will take it's place the next day. Maybe more important: the company does not even have to fail for this 1% drop, if the market just thinks the company will fail and no one wants to buy the stock, it will push the price down to zero and the index will drop 1%. Scary thoughts. Stocks are worth what someone wants to buy it for and there is no other definition. The price you see was the last price someone was willing to pay for it. Stock returns are not about companies successes and bankruptcies, though there is a strong connection obviously. What investors think about a company and its stock price is more important and what stock returns measures are showing. Flash crashes happen and financial crises happen but in general companies tend to fail slower than Lehman. So investors will sell at different points as a company's stock price falls. Different indexes will track this. As a stock leaves the FTSE 100 it may enter the FTSE 250. There are indexes with thousands of stocks. And there are 100,000+ indexes out there. Pick the one most relevant to you. No index will be perfect. You can always create your own. The big famous indexes are often products/services run by companies and they compete. LSEG and Standard & Poor's (S&P 500) for example. These companies selling their index licenses and index data and other related stuff are usually public companies so their stock is in its own indexes. It can get circular weird. For the FTSE 100 look at the London Stock Exchange Group (ticker LSE) website under products and services- FTSE Russell: http://www.lseg.com/ http://www.lseg.com/ Hope this helps a bit. Apologies if not clear. I find this stuff can be confusing sometimes and I work in finance and do this all day. Happy to happy more if I can. TL:DR Indexes are just proxies but they do capture company failure. How they do it involves looking at the fine print methodology for the index you are using.