Q&A: What Does the NSE All-share Index Really Mean?A market index is a quick measure to judge the overall direction of the market and the scope of its movements. Even in the most bullish or bearish markets, you are likely to see stocks that their prices do not move in the same direction with the overall market trend. On a typical trading day, prices of various stocks will move in different directions, some gaining and others losing. Given that scenario, it would be difficult ordinarily to readily make a judgement as to overall market direction without complex on-the-spot calculations. That's where a ready market price index comes handy. A market index is a statistical parameter to reflect the composite value of a market characteristic. When it is the price, we have a price index, which is an attempt to represent the overall price performance of the market with one statistic - the index value. In effect, the index is calculated in a way that makes it generally representative of the market. In all cases, effort is made to use a basis that best achieves the intended purpose. Usually, that entails some weighting of the individual components. If, for instance, we sum up the prices of all stocks, that will produce a statistic. However, that will not reflect the strength of each company. A weightig with market capitalisation would produce a capitalisation-weighted index that reflects company capitalisation. On the basis, there are price-weighted, capitalisation-weighted and even share-weighted indices. An index can be representative of the entire market - like the NSE all-share index - or just for a section - like tech stocks or top 100 most capitalised stocks or whatever. Only that the basis should be known. The NSE All-share Index is a total market (broad-base) index, reflecting a total picture of the behavious of the common shares quoted on the Nigerian Stock Exchange. It is calculated on a daily basis, showing how the prices have moved. It started in January 1984, the base year, with a value of 100 and has now risen beyond the 6,000 mark..  |
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