when growth in market cap>growth in price index

CFA Level III Portfolio Management
#1

Hi,

Can you help me with the following (SS 8 Asset Allocation):

when growth in market capitalization>growth in price index it indicates dilution in returns

But price index is an indicator of market capitalization, isn’t it?

Can you explain it please?

Thanks in advance.

#2

When a company issues more shares it will dilute returns to each shareholder. Market capitalization is shares times price , so growth can come either through price appreciation or shares increase or both. When price appreciates but shares stay same or even decrease it is good for shareholders who derive more returns from price increases, but when shares increase it indicates dilution

#3

Janakisri,

Thank you!

#4

you are very welcome