F
Falak Soomro
Member
Can anyone explain me the following boldened Acted Material of Chapter 14 pg 4:
Right issues, for example, will increase both the number of shares and the total market capitalisation. However, this does not mean that the index should be increased. After all, the value of a protfolio of shares would not jump upwards. For a portfolio to remain fully representative of the whole market, some of the holdings would have to be sold in order to take up an appropriate proportion of right issues.
Fixed weight indices are rebalanced in a similar way. Part of the portfolio can be notionally sold so that the new issue can be notionally bought.
I am unable to grasp how holdings would be sold in order to take up an appropriate proportion of right issues. For instance, if there is an 100 stock index and one company, top company, issues right shares then the lowest 100th market capitalisation would be taken out to include the additional shares of that specific top company.
Can anyone please clear me?
Falak
Right issues, for example, will increase both the number of shares and the total market capitalisation. However, this does not mean that the index should be increased. After all, the value of a protfolio of shares would not jump upwards. For a portfolio to remain fully representative of the whole market, some of the holdings would have to be sold in order to take up an appropriate proportion of right issues.
Fixed weight indices are rebalanced in a similar way. Part of the portfolio can be notionally sold so that the new issue can be notionally bought.
I am unable to grasp how holdings would be sold in order to take up an appropriate proportion of right issues. For instance, if there is an 100 stock index and one company, top company, issues right shares then the lowest 100th market capitalisation would be taken out to include the additional shares of that specific top company.
Can anyone please clear me?
Falak