i) What is a stock exchange index? (ii) Outline four drawbacks of the Nairobi Stock Exchange...

i) What is a stock exchange index?

(ii) Outline four drawbacks of the Nairobi Stock Exchange index

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(i) An index in general terms is a measure of relative change from one point in price to
another. Stock indices measure changes in price or value.

(ii) Drawbacks of NSE:
- 20 companies not true representatives
- Thinness of the market – small changes in the active stocks tend to be
considerably magnified in the index.
- 1966 base year too far in the past
- Relatively small price changes – some stock prices do not change for weeks on
end.
- Lack of clear portfolio selection criteria
- Use of arithmetic instead of preferred geometric mean in computing index.
- New companies have been quoted and others deregistered.

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marto answered the question on February 8, 2019 at 04:57

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