How are indices constructed?
Stock market indices are intended to reflect the overall movements of a group of securities, and as such how the index is computed is important. Factors that are considered in computing an index include, the appropriate sample to use, weighting schemes and the computational procedures to be applied. Generally, stock market indices can be categorised by the weighting schemes used on the sample of stocks. The different index series are:

1.	Price weighted series: A series that is an arithmetic average of current prices and as such, the differential price of the component stocks influences the movements of the index. One of the oldest and most well-known price weighted index is the DJIA, which is made up of 30 selected blue-chip stocks listed on the New York Stock Exchange (NYSE). Another example is the Nikkei-225 index, which is based on the average of prices of 225 stocks on the first section of Tokyo Stock Exchange.
2.	Value weighted series: This series is generated by deriving the initial total market value of all stocks used in the series, which is used as a base (and assigned an initial value such as 100 or 0). Subsequently, a new market value is computed for the component stocks, and is compared to the base to determine the percentage change, which in turn is applied to the initial index value. An example of a value-weighted series is the KLCI, which consists of 100 KLSE main board component stocks (a list of which is available on the KLSE website: www.klse.com.my). The index, which has its base as 100 (in 1977), is computed as follows:
	KLCI = (Current aggregate market capitalisation/Initial base market capitalisation) x 100