Page 24 - FINAL CFA SLIDES DECEMBER 2018 DAY 13

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.