Measuring Market Performance of the Nairobi Stock Exchange

Abstract

This study set out to construct an alternative index for the Nairobi Stock Exchange. The need for the study emanated from the weaknesses of the current NSE 17-Share daily Index. The index excludes most of the active companies quoted on the exchange in the last six years. Among those ignored are such active stocks as Barclays Bank and the Standard Chartered Bank. The index also gives equal weight to all companies irrespective of the number of shares quoted. In addition, on a stock market there is usually need for alternative performance measures to give interested parties a wide range of choice in order to meet their diverse needs. The index arrived at in this study was a 23-share index made up of the most actively traded stocks in 1991. It had the period of January-June, 1975 as the base period and the base value was set at 100 in this period. The index is weighted by the number of shares outstanding in the base period. The prices used were the geometric means of the bid and offer prices. The index was computed using a laspeyres type formula. The weights were adjusted for chances in capitalization for example through bonus, rights issues or new issues.