Karachi Stock Exchange
The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, founded in 1947, it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Its current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District. Karachi Stock Exchange is the biggest and most liquid exchange in Pakistan. It was declared the “Best Performing Stock Market of the World for the year 2002”. As of 2010, more than 700 companies are listed. By 30 July 2010 total market capitalization of the KSE reached Rs2.95 trillion, approximately 35 billion dollars.

KSE Indices:
Currently, there are three indices operating in Karachi Stock Exchange. KSE 100 Index 2. KSE 30 Index 3. KMI 30 Index

KSE Index:
Karachi Stock Exchange 100 Index (KSE-100 Index) is stock index acting as a benchmark to match up to prices on the Karachi Stock Exchange (KSE) over a phase of time. In shaping representative companies to figure out the index on, companies with the maximum market capitalization are chosen. However, to make sure full market version, the company with the uppermost market capitalization from each segment is also integrated. There are four indicators of market performance: Market Capitalization ● Value Turnover ● Traded Volume ● Composite Index

Interest rates, foreign exchange, inflation, growth rates - these are some other economic indicators, which affect the performance of the Stock Market. Favorable growth and inflation rates, as well as stabilized interest rates and foreign exchange, are good news for the stock market. They usually give a boost to the market performance as these indicate sound economic status. Soaring interest rates, on the other hand, usually push investors from the stock market to some interest-bearing investments, as they offer better returns than stock investing. The Karachi Stock Exchange KSE-100 Index is the bench mark for our market, it comprises of the top companies from each of the 34 sectors on the KSE, in terms of market capitalization. The rest of the companies are picked on market capitalization ranking, without any consideration for the sector to make a sample of 100 common stocks with base value of 1,000 in late 1991. There are two other indices; KSE-30 Index, which is based on free float capitalization of top 30 companies and KSE all shares Index which is based on full market capitalization of all listed companies at the Exchange. An index, a composite figure, becomes a benchmark index when you choose it as the standard against which to measure your own portfolio's performance over time. Many investors like to keep track of how companies are performing in general. When a company's share price moves up or down, it shows, whether it is perceived to be lucrative by the investors. Movements in share prices are measured by various indices. These provide a benchmark against which you can compare the performance of your shareholdings. The most quoted index is the KSE-100. It comprises of the 100 largest companies on the Stock Exchange and is updated minute by minute during trading hours. The index reflecting all the companies on the Stock Exchange is the KSE-All Share Index and the KSE-30 Index comprises of top 30 companies. Various investment companies have made their own indices to keep track of the performance of their portfolios. There are three major types of indices calculated to help private investors track the performance of their investment portfolios: The Income Portfolio represents the performance of a portfolio designed to provide a regular flow of income. ● The Growth Portfolio is for the investor seeking capital growth in his or her portfolio. ● The Balanced Portfolio represents a balanced portfolio providing both capital and income.

The indices are made up of three broad types of asset: Pakistani equities, foreign equities, bonds and PIBs.

Lahore Stock Exchange
Lahore Stock Exchange was established in October 1970 and is the second largest stock exchange in the country with a market share of around 12-16% in terms of daily traded volumes. LSE has 519 companies, spanning 37 sectors of the economy, that are listed on the Exchange with total listed capital of Rs. 555.67 billion having market capitalization of around Rs. 3.64 trillion. LSE has 152 members of whom 81 are corporate and 54 are individual members. Activities of Lahore Stock Exchange (LSE) have increased significantly in all operational areas since its inception. Over the years, LSE has successfully met various challenges and has now emerged, fully geared and positioned to aggressively compete with its fellow Exchanges, contributing towards the growth of Capital Markets in Pakistan. The two distinct indices the LSETRI and the LSE-25 are weighted by their listed capital and have identical company selection criteria. Both the indices are composed of 25 companies selected on the basis of the highest turnover at the Lahore Stock Exchange. However, they are distinguishable from each other by the treatment of corporate actions of component companies (i.e dividends, bonus, rights, etc.). Of particular interest to analysts is the fact that the two indices are based on ordinary shares listed at the Lahore Stock Exchange, and the fact that the Exchange is making public the qualifying/disqualifying criteria as well as a negative list. On a very basic level, any stock market index is simply a numerical value that measures the change in the market. In Pakistan, the main objective for the construction of an index is to track the performance of the various listed stocks according to their market capitalization. In general, a capital weighted index is composed of a basket of securities, which captures the change in market capitalization due to the variation in prices. Mathematically this can be represented by:

The index value itself is simply a number, which represent the total market value of all companies within the index at a particular point in time compared to a comparable calculation at the starting point also referred to as the base value. The Lahore Stock Exchange through this paper is introducing two market value indices (stock price times number of share outstanding), which consist of 25 stocks each. The same formula is applicable for both the indices and is represented by:

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