In 1995 a
reorganization of the Portuguese capital market took place. The Oporto Stock Exchange terminated the
trading of stocks and reopened as the Portuguese Future and Options Exchange. Under an agreement with the Lisbon Stock Exchange, it
introduced the PSI-20 index as an underlying for futures and options contracts. The PSI-20 mirrors the price dynamics of 20 leading Portuguese
stocks that together represent more than three quarters of the Portuguese market capitalization. Historical information is
available dating back to 1992.
The PSI-20 index
belongs to the category of capitalization-weighted value ratios and is calculated in real time. The selection of the index sample
is carried out using a two-step procedure. In a first step, various stock pre-selection criteria are applied, viz.
Based upon the pre-selection process, in a second step the index constituents are selected according to a composite criterion which mainly takes
into account the liquidity and the market capitalization of individual stocks. The index is re-evaluated on a
semi-annual basis and in the case of a delisting, a merger, or similar events.
- issuing companies must be listed in the official market
segment and its stocks must be traded in the continuous automatic system;
- issuing companies must have their headquarters in Portugal;
- the same firm group must not be represented by the stock
of more than one of its member companies to avoid a high degree of statistical correlation between individual stocks in the PSI-20 index;
- issuing companies should feature a steady outlook for liquidity and the continuity of the price formation process.
In April 1998 the Portuguese Futures and Options Exchange introduced the PSI-20 TR index, which is
adjusted for cash dividend payments.