The The logical index of the stock market

Abstract

This research aims to build a stock market index according to a proposed mechanism through which the trading volume and trading price were taken into account in calculating the market index value after each trading transaction executed in the market, and calculating the average share price of the company concerned with the trading transaction as an alternative to the closing price determined by the stock selling price in the executed trading transaction.

The research was based on the researcher's observation of the lack of objectivity of stock market indices, and their inability to accurately represent the state of the markets and their trends according to the common traditional methods of calculating their values.

The research relied on the comparative experimental approach by assuming a market situation that includes five listed stocks, and assuming several different and descriptive cases that express different market trends with various price change rates, and then calculating the value of the general market index for each case according to one of the most common and widely used calculation methods in stock markets across different countries of the world, as well as according to the mechanism proposed by the researcher.

The research concluded with important results indicating that the index calculated according to the traditional approach is illogical and incapable of representing the described and assumed market condition, while the index calculated according to the approach proposed by the researcher was logical and more accurate and objective in representing the studied market conditions.