# Index Methodology of Dse

Topics: Stock market, Stock market index, Market capitalization Pages: 11 (2740 words) Published: December 26, 2010
Index Methodology
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 is 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 |Index | |DAY1 |Tk 20,000 |1000 | |(base day) | | | |Day 2 |Tk 30,000 |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 = --------------------------- * Base Day's index
Base Day's portfolio value

Tk 30,000
= ----------- * 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.

Index Calculation Algorithm (according to IOSCO Index Methodology):
Yesterday's Closing Index X Current M.Cap Current Index = --------------------------------------------------------------                     Opening M.Cap

Yesterday's Closing Index X Closing M.Cap Closing Index = --------------------------------------------------------------                     Opening M.Cap

Current M.Cap = ∑ ( LTP X Total no. of indexed shares )
Closing M.Cap = ∑ ( CP X Total no. of indexed shares )
Abbreviations and Acronyms
M.Cap  - Market Capitalization
DSE      - Dhaka Stock Exchange
IOSCO - International Organization of Securities Exchange Commissions (IOSCO) LTP      - Last Traded Price
CP        - Closing Price

DSE Share Price Index:
|Sl.No |Index Name |Base Index |Remarks | |1 |DSI (all shares) |350 (as on 01-11-1993) |  | |2 |DGEN |817.63704 (as on 24-11-2001) |SEC directive regarding index was on | | |(A, B, G & N) | |17-11-2001 | |3 |DS20 |1000 (as on 01-01-2001) |  |

DSE introduced the DSE-20 index from January 1, 2001 comprising the blue-chip shares with a base index of 1000 as on January 1, 2000.

Since then, the index has been revised on two occasions, once in 2002 and later in 2004.

The companies which are placed under the index currently are Square Pharmaceuticals, Islami Bank Bangladesh, Prime Bank, British American Tobacco, Beximco Pharmaceuticals, Southeast Bank, Dhaka Bank, National Bank, Square Textiles, Bata Shoe, BOC Bangladesh, Singer Bangladesh, ACI Ltd,...