Measures of Securities Prices - Business Finance - ثاني ثانوي

Link to digitat esp 4.4 Measures of Securities Prices www.len.edu.sa Key Term Market capitalization-weighted index Stock market exchanges have been one of the largest mechanisms of wealth creation for individuals around the world. 4.4a Market Downturns Throughout the history of stock market investing across the world, there have been a number of market crashes or downturns. Famous crashes include the South Sea bubble of 1720 and the 1929 Wall Street crash. Despite downturns being a recurring theme of stock market investing globally, over the long-term stock markets have recovered and made good long-term investments. Crashes often follow a "bubble" or run up in prices and follow a similar pattern of irrational exuberance. Historically, the period after a crash has resulted in a period of strong investment performance for long-term investors, as the inexperienced investors cut their losses and sell when the market is low. Marktp The total value of all a firmas shares listed on the market on a day divided by the total value of all ne shares the tim previously listed on the index 4.4b Market Index There are a number of market indexes used in exchanges around the world. A market index tracks a set of securities showing trends in market performance. An index can show trends over time for a basket of securities in a market. An index could be calculated by the prices of all securities in the index or by a market capitalization-weighted index. A market capitalization-weighted index is the total value of all a firm's shares listed on the market on a day divided by the total value of all the shares the firm previously listed on the index. With this index companies with a higher market capitalization (most overall value) will receive a higher weighting and companies with a small market capitalization will have less of an impact on the performance of the index. Securities prices and related indexes fluctuate daily. 162 Business Finance

A number of market indices are used to measure the performance of Saudi securities: 1. The Tadawul All Share Index (TASI), measures the stock price of publicly traded companies on the Saudi Stock Exchange. The MSCI Tadawul 30 Index (SAR) was developed by the Morgan Stanley Capital International (MSCI) firm and the Saudi Exchange. This index includes the top 30 securities listed on the Saudi Main Equity Market. 2. The Parallel Market Capped Index (NomuC) uses a market capitalization-weighted calculation methodology but caps a threshold of 20% for any security to avoid a single security dominance on the Nomu Capped Index. 3. The TASI Islamic Index is a Shariah-compliant index. This index tracks the performance of companies listed as Shariah-compliant on the Saudi Exchange. 4. There are also indexes of subsets of the securities market. For example, the Saudi Exchange's website lists industry indexes based on the Global Industry Classification Standard (GICS). GICS is a common global industry classification standard, allowing investors to invest in specific industries such as energy, capital goods, consumer services, retailing, etc. Figures 4.4A and 4.48 illustrate index market values changing over time. وزارة التعليم " Hv 12,340.00 15 (5.25) (AV S=(ASIA Π FIGURE 4.4A CHAPTER 4 An Introduction to Financial Markets 163

Figure 4.4A shows the increase in the market value of the TASI stocks. Note that the index moves up and down but has seen considerable growth since 2020. This is a 5-year chart and shows that the index has increased 74.15% over the last 5 years. These types of online charts allow for tracking over 1 day, 5 days, 1 month, 6 months, year to date (YTD), 5 years, and a maximum based on the historical data available which can be found on the TASI index of the Saudi exchange. This same type of information on individual stocks is available as well. FIGURE 4.4D 12,340.00 74-15% 2005 Dele: X 202X Tavaline Index ASIYEAR Pl 164 lyBusiness Finance * 82% 218 TAWA Sam ex Dow ones indulge 200 2121 74 15 Figure 4.48 shows a comparison of two indexes, the TASI and the U.S. Dow Jones Industrial Average (DJ) index. Since these two indexes are based on different currencies, percent growth in the overall value is used. There is some general similar movement in these trends. A company's value reflects not only what happens within the firm or country, but also the larger impact of the global economy on a company's perceived value. While the TASI index increased 74.15% over the last 5 years, the DJI only increased 49.00% in the same period.

Exercises Choose the correct answer. 1. Stock markets almost never drop in value. True/False 2. A tracks a set of securities showing trends in market performance over time. a. market tracker b. market trader c. market index d. stock tracker وزارة التصليح 2921-1809 CHAPTER 4 An Introduction to Financial Markets 165