Page 24 - FINAL CFA I SLIDES JUNE 2019 DAY 12

Market Capitalization Weighting, p.223 Session Unit 13:
45. Security Market Indexes

Example: Price-weighted vs. market capitalization-weighted indexes, p.223: Consider the three firms described below.
Compare the effects on a price-weighted index and a market capitalization-weighted index if Stock A doubles in price or if
Stock C doubles in price. Assume the period shown in the table is the base period for the market capitalization-weighted
index and that its base value is 100.

If Stock A doubles in value, the

tanties index goes up 33.33 points, while
if Stock C doubles in value, the

index only goes up 0.33 points.
Changes in the value of the firm
with the highest stock price have a

disproportionately large influence
on a price-weighted index.