Index: in the perspective of Finance, index is a statistical tool that measures the change in the economy

or a certain market. It serves as barometers for a given market or industry and benchmarks against
which financial or economic performance is measured.
Classification of Index

Index weighting methods
1. Price Weighted Index: Price weighted indices
are calculated by adding the share price of each
security and dividing the total by the number of
securities in the index.

2. Value weighted Index: Value weighted indices
are based on the market capitalization of each
company included in the index. Value weighted
indices returns track the return of all the publicly
traded shares in the index.
3. Equal Weighted Index: Equal weighted indices
invest the same dollar amount in each stock.

4. Fundamentally Weighted Index: Fundamentally
weighted indices weight the securities according
to fundamental factors such as sales, earnings or
book value.

Methods of creating Index:

A. simple aggregative method
1. Simple aggregative method:
i. Add current year prices for various commodities, i.e., obtain pi
ii. Add the base year price for the same commodities, i.e., obtain po
iii. Divide pi by po and multiply by 100
2. Simple Average of Relatives method:
i. The simple aggregative value is divided by the value of the arithmetic or geometric mean


B. weighted Index Numbers

=
pi

100
=

100

=
log

Index in BD: The Dhaka Stock Exchange presently computes three indices, DSE General Index (DGEN),
DSE Broad Index (DSEX) and DSE30 Index (DS30). None include mutual funds, debentures and bonds.
DSEX: Broad Index of the Exchange (Benchmark Index) which will reflect around 97% of the total equity
market capitalization. Eligible stocks must have a float-adjusted market capitalization above 100 million
BDT. Additionally, if a current index constituent falls below the 100 million BDT threshold, but is no less
than 70 million BDT, then the stock remains in the index provided it also meets the other inclusion
criteria. The total numbers of constituents in DSEX are 206.
DSEX construction methodology
Market Capitalization: Eligible stocks must have a
float-adjusted market capitalization above 100
million BDT
Liquidity: At each annual rebalancing, if a current
index constituent falls below 1 million BDT, but is
no less than 0.7 million BDT, then the stock
remains in the index provided it also meets the
other eligibility criteria.
Financial Viability and sector classification: Not
required for index membership.
Base Date and Base Value: January 17, 2008 with
the base value of 2951.91
Interim IPO additions: Under the S&P Dow Jones Index Methodology, Interim IPO additions to the
DSE Broad Index(DSEX) take place quarterly on the third Thursday of April, July and October

DSEX DGEN
excludes locked-in shares held by promoters and
governments
Includes all the shares outstanding as in full-
market capitalisation
Free float methodology

designed to reflect the broad market
performance

International standards
National standards

Flawed calculation

DSEX:

DGEN:
DGEN, calculated in a wrong method, has been the most talked-about issue among the retail investors
over the last five years. The index skyrocketed during 2009-2010 before nosediving to a record low.
The flawed computation of the index first came to light following the debut of Grameenphone on the
stock market in November, 2009 when the DSE general index gained more than 700 points in a single
day. The DGEN reached its record high of 8,918.51 points on December 5, 2010 with a record turnover
of Tk 3,249.57 crore. The market crashed afterwards and the DGEN came down to as low as 3,988.99
points on July 10, 2012 amid a downtrend at the market in the last two years.