Please explain Q53
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Market cap weighted index is constructed using market cap of securities. Market cap as we know is Share Price*No of O/S shares so if company’s share price is increasing or no of outstanding shares are increasing then the weight of the security also increases in the index.
BV/MV is nothing but inverse of P/B ratio. As we know in fundamental weighted index, P/B is low because it has value tilt. In M-cap weighted, BV/MV is lower which means that Market Value is higher compared to Book value.
Market cap weighted index has momentum effect which means that those securities who are doing well gets a place in the index.
suppose , Book value/ Market value = A , if market value rise then “A” will fall. In market cap weighted index constituents weights are depends upon their market cap.
( market value & market cap is same)