1. Security market index is often regarded as a mirror that reflects entire economy of a nation.

Critically analyze and subscribe your views in this statement in reference to security market
of Nepal.
Security market is a component of the wider financial market where securities can be
bought and sold between subjects of the economy, on the basis of demand and supply.
Security markets encompasses stock markets, bond markets and derivatives markets where
prices can be determined and participants both professional and non-professional can meet.

Securities markets can be split into two levels: primary markets, where new securities are
issued, and secondary markets where existing securities can be bought and sold. Secondary
markets can further be split into organized exchanges, such as stock exchanges and over-
the-counter, where individual parties come together and buy or sell securities directly. For
securities holders knowing that a secondary market exists in which their securities may be
sold and converted into cash increases the willingness of people to hold stocks and bonds
and thus increases the ability of firms to issue securities.

A market index is a hypothetical portfolio of investment holdings that represents a segment

of the financial market. The calculation of the index value comes from the prices of the
underlying holdings. Some indexes have values based on market-cap weighting, revenue-
weighting, float-weighting, and fundamental-weighting. Weighting is a method of
adjusting the individual impact of items in an index.

Investors follow different market indexes to gauge market movements. The three most
popular stock indexes for tracking the performance of the U.S. market are the Dow Jones
Industrial Average (DJIA), S&P 500 Index, and Nasdaq Composite Index. In the bond
market, Bloomberg is a leading provider of market indexes with the Bloomberg U.S.
Aggregate Bond Index serving as one of the most popular proxies for U.S. bonds. Investors
cannot invest directly in an index, so these portfolios are used broadly as benchmarks or for
developing index funds.
Capital market and financial institutions are the source of development of any economy.
Developed economics have fully developed capital market, whereas underdeveloped
economies usually have premature capital market that consists of very few financial
instruments. Nepal lags behind to develop a healthy capital market although it remains
important for all types of investors. Nepalese capital market has a very long way to go but
we cannot ignore the recent development and advancement in technology and process
improvement. Market has been deepening with increased listed companies and traded
companies every year. The erratic trend in the value of market capitalization imply poor
and immature capital market, de-motivation in investment in the companies, and downward
trend of economy during the study period. The total no. of listed shares is in increasing
trend which is a good signal for the financial market and for the economy as a whole. It
increases the transparency and reduces the risk of fraud as well as strengthens the financial
system. Increase in number of listed companies and shares also represent growth of
Nepalese securities market. In spite of the Joshi: An Analysis of Security Market Growth
and Individuals' Investment Decision significant relationship between traded and listed
companies, the number of companies traded is not satisfactory during the study period.
These evidences indicate the trading of securities is unattractive and this also implies that
there is lack of confidence among investors and uncertainty in the investment environment
in the economy.