free float

practice exam v1 e2 qq3, “the recommended solution to the free float problem in international mkt is to precisely determining the amt of shares to be floated by an issuer in the upcoming year,and use that to recalculate the issuer’s weight in mkt capitalization weighted indices.” why wrong??

I think key word was " precisely ". it is very difficult to precisely determine the amount of shares to be floated…

Why the upcoming year? The free float problem is really about how many shares are available for trade. If 51% of the shares are owned by the government, leaving only 49% available for other investors, then the market cap for the company should be (# shares)*(share price)*(49%) , yes? I don’t think the upcoming year is relevant here, unless a change in float is expected.

yeah, it’s hard to precisely determine anything, especially in international markets. there are closely held shares and cross held shares, which may be difficult to count. you should develop wider than average bands around the free float so that you do not have to rebalance that frequently (lowers costs) and call it good.

OP: the statement is not only wrong its almost nonsensical. How many new shares the company is going to stick on the market in the coming year is competely irrelevant and nothing directly to do with free float.