Index Methodology of Cse

Chittagong Stock Exchange

I NDEX M ETHO DO LOGY

A stock market index is a number that indicates the relative level of prices or value of securities in a market on a particular day compared with a base-day figure, which are usually 100 or 1000. There are many different ways of constructing an index. One of the most common methods is illustrated by the following simple example. The values of a market portfolio at the close of trading on Day 1 and Day 2 are recorded below: Value of portfolio DAY 1 (base day) Day 2 Tk 20,000 Tk 30,000 Index 1000 1500

We take Day 1 as the base day. The index on that day will be taken as a standard. The value assigned to the base day index is 1000 in this example. On Day 2 the value of the portfolio has changed from Tk 20,000 to Tk 30,000, a 50% increase. Therefore, the value of the index on Day 2 will change to indicate a corresponding 50% increase in market value. The computation follows the procedure below: Day 2's portfolio value Day 2's index = --------------------------------------- x Base Day's index Base Day's portfolio value Tk 30,000 = ------------------ x 1000 Tk 20,000 = 1500 Day 2's index is 1500 as compared to the 1000 of day 1. The above illustration only serves as an introduction to how a particular index is constructed. The daily computation of an index is more involved especially when there are changes in market capitalization of constituent stocks, e.g., rights offers, stock dividend etc. The primary objective of constructing market indices is to measure the performance of the market. The indices provide vital information about the current and historical behavior of the market. Stock market indices differ from one another basically in their sampling and/or weighting methods.

Index Methodology of Chittagong Stock Exchange (CSE)

SAMPLING METHOD

There are some market indices that are composed of all stocks listed in a market, e.g., the American Stock Market Index and the Hong Kong Stock Exchange...