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KSE 100

Executive Summary of CFA® Level 1 reading on Security Market Indexes

  • An index is a measure of the performance of a market
  • Some of the best know indexes include the Dow Jones Industrial Average (DJIA), S&P500, FTSE and Nikkei
  • Indexes can be created for a market segment; for example you can create an index which only tracks small-cap stocks
  • There are three types of stock market indexes
  • Price Weighted Indexes
  • Value Weighted Indexes
  • Unweighted Indexes
  • Price weighted index is calculated by taking the arithmetic mean of all stocks in the index (adjustments are made for stock splits)
  • DJIA and Nikkei are price weighted indexes
  • You can match the performance of a price weighted index by buying the shares in the index.
  • Value weighted index is based on the relative market value of stocks in the index
  • NASDAQ and KSE100 are value weighted indexes
  • For value weighted  indexes a change in high market value shares has a relatively high impact
  • Unweighted index places an equal weight on the returns of all index stocks, regardless of size or market value
Pakistan Context
  • Indexes used in Pakistan include: KSE100, KSE30, LSE25, ISE10 and BRIndex30.
  • The most commonly quoted index is the KSE100; it provides a good indication of how the Pakistan equity market is performing
  • KSE100 is a value weighted index; calculation methodology is exactly as you learned in the CFA curriculum.
  • Base year is 1999 with a base value of 1000
  • 100 stocks in the index are selected based on two fundamental rules
  • Largest market cap stock from each of the 34 KSE sectors
  • The remaining 66 companies are selected based on market cap
  • The KSE100 index captures about 80% of the total market capitalization of firms listed on the KSE
  • KSE100 is reconstituted every six months
  • Companies on the defaulter’s counter and/or companies which have been declared non- tradable are not considered in the reconstitution
 

 

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