The characterestics of the equally weighted market index and the value weighted market index and their implications for market based accounting research: The case of ase

Abstract

This study examines empirically the characteristics of the two market indices developed by Amman Stock Exchange (ASE) and their related returns: the equally weighted index (EWI) and the value weighted index (VWI). The monthly‐prices for each index are obtained from ASE for the entire nine‐year period (1992‐2000) to compute market returns for both indices. The study period is divided into seven intervals of different lengths. The results of the test and the nonparametric (Wilcoxon) test indicate that the value weighted market return (VWR) tends to be significantly higher than the equally‐weighted market return (EWR). The variances of the two market returns tend to decrease as the length of the time intervals increases. Inconsistent with prior research findings, the differences between the two market returns variances failed to be significant at the 0.05 level. The study findings may have implications for capital market research that apply the market model in emerging markets, in general, and in ASE in particular.