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Thursday, August 30, 2007

What is "Variable Weighted Average Price"

The NSE provides a VWAP on their price list. Click here to go to their website to download a pricelist. The link is located on the left side.

I was informed (right or wrong) that the "V" stands for "Variable"...
I know what a Weighted Average Price is but if WAP is variable then what good is the WAP????

Does anyone know for sure HOW the NSE calculates the VWAP?

Will a Math major... or anyone else please help me out! I googled the term but came up with nothing that included the "variable"...

Or is this Kenyan style math where:
Politician( aka pig/GOK/GOK employee/FOK/moi) receives 100/- but the mwananchi/project receives 10/- but the politician (& his cohorts) crow how the project received the full allocation.

To recap how Kenyan math works 100=10.

Back to "V"WAP... erm, please explain to me what it means!

8 comments:

MainaT said...

CT-erm, VWAP is volume weighted average price i.e. turnover divided by total number of shares traded. However, for some shares they only consider trades doen in the last hour of trading...

coldtusker said...

OK... volume makes more sense....

BUT why call it that when only shares traded in the last one hour count?

What I have observed is that more shares are traded in the first hour when the brokers want to pick the low-hanging fruit.

MainaT said...

CT-I've been told that the first hour tends to be when the fraud is done i.e. if you have requested @market price, a broker will typically by low in the first hour and sell you at higher price just before close.

FTSE does actually offer a menu of prices for institutionals and then the publicised price.

coldtusker said...

MainaT: From your example the entire transaction is fradulent. The best VWAP (per your explanation) is for the entire period!

MainaT said...

CT-sorry to ruin this topic, please have a read of this https://secure.wikileaks.org/leak/KTM_report.pdf and publicise.

mystic said...

did someone say a math major???

i will give a simple scenario to give u an idea. lets say kengen sells 20,000 shares at Ksh30 and 32,000 shares at Ksh29. the weighted average will be ((20,000*30)+(32,000*29)/52,000) giving 29.38

the variable only means that it varies with volume instead of being fixed at a specific volume level.

this may not be exactly how NSE calculates it but this is what weighted averages mean (at least what i learnt in college)

good job CT but i differ with your explanation. your explanation is the regular definition of averages. if that is what really happens at NSE then using the term VWAP is misleading investors. technically, they have to consider each price traded not only the last or the first hour.

keep up the good work CT (u will be hearing more from me)

mystic said...

sorry, i meant to say MainaT's explanation...

coldtusker said...

Mystic - Thanks for stopping by and I hope to see you around more often!

Your explanation is WAP. The weighting is a function of volume & price. And the only way to have a "accurate" price is using ALL the volume...