Market cap jumped but index fell: Was it a technical error?

Although the prime index of the Dhaka bourse plummeted 70 points, or 1.17 per cent, the market cap surged by Tk 277 billion or 4 per cent on Monday, from the day before. Analysts described the data as "unusual" and suspected "technical error" in the calculations.
The common trend is when the market index rise, the market cap also rise and vice versa.
But on Monday, according to the DSE, the market cap of the main bourse went up from Tk 6,996 billion to Tk 7,273 billion, despite the fact that most large-cap stocks experienced price erosion. Instead of rising, the benchmark index plunged to three-year low to 5,898 points.

The Dhaka Stock Exchange's broad index (DSEX) represents major equity-based securities. However, when it comes to total market capitalisation, it includes all stocks, bonds, and mutual funds (MFs).
Since bonds and MFs do not move much on the bourses, the market cap moves in the direction of the broad index. Historical data reconfirm this.
There are very few exceptions.
The market cap may climb up, with the index falling, when new stocks and bonds are added to the bourses or when a few large-cap stocks make a jump.
But the prime bourse confirmed that there was no new issue or T-bonds incorporated on Monday.
"As there is no Treasury bond added to the market capitalisation, it is a very unusual movement. The DSE should look into the matter seriously," said Md Ashequr Rahman, managing director of Midway Securities.
More than 83 per cent of the traded issues saw correction on Monday. Out of 396 issues traded, 330 saw price fall and 34 witnessed price appreciation while 32 remained unchanged on the DSE trading floor.
Among the top 10 large stocks, seven saw price fall. Only Grameenphone saw a 0.08 per cent gain, while two remained unchanged on Monday, the DSE data showed.
Akramul Alam, head of research at Royal Capital, said a significant rise in the market cap looked unusual when market index declined.
The market cap is calculated by multiplying the total number of companies' outstanding shares with the current market prices.
Before the T-bonds were included in the market capitalisation, the correlation between index change and market capital change was 0.95.
The correlation coefficient is a statistical measure of the strength of a linear relationship between two variables. Its values can range from -1 to 1. A correlation coefficient of -1 describes a perfect negative, or inverse, correlation, with values in one series rising as those in the other decline, and vice versa.
After the trading of T-bonds began in the secondary market, the average correlation coefficient became 0.65, with the last two trading days excluded.
Hence, the relations between the index and the market cap have always been positive.
Contradicting the trend, on Monday, the DSE index and market capitalisation showed an inverse relationship.
This is not the first time, the DSE showed errors on the trading board. Owing to technical glitches, trading had been suspended many times.
A week before, technical glitches wiped out 98 per cent of the main index of the Dhaka bourse. The indices of the DSE were showing "unusual" data due to operational errors.
The DSE has constituted a three-member inquiry committee led by Sattique Ahmed Shah, chief financial officer of the DSE, to look into the matter.
The Bangladesh Securities and Exchange Commission (BSEC) has also formed a two-member probe committee.
Some stockbrokers and investors expressed dissatisfaction over repeated problems with the DSE trading server.
Md Rajib Ahmed, an investor, said repeated disruptions to trading on the premier bourse reflected a lack of competence.
DSE's explanation
When asked about the matter, Dr ATM Tariquzzama, managing director of the DSE said, "The [calculation] process is error free. It is automated, but we will see why this happened.
"We will look into whether there was any technical fault in calculation of market index and market cap on Monday."
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