How DJIA is calculated~~FYI
Dow Jones Industrial Average Quotes
Stock Quotes for the 30 companies of the Dow Jones Average. From Yahoo. See profiles of the companies.
|an estimation of the value of a business that is obtained by multiplying the number of shares outstanding by the current price of a share.
By JLP | December 4, 2006
Have you ever wondered HOW the Dow Jones Industrial Average is calculated? Here’s how!
According to the Dow Jones website, the index is calculated as follows:
The Dow Jones averages are unique in that they are price weighted rather than market capitalization weighted. Their component weightings are therefore affected only by changes in the stocks’ prices, in contrast with other indexes’ weightings that are affected by both price changes and changes in the number of shares outstanding.
When the averages were initially created, their values were calculated by simply adding up the component stocks’ prices and dividing by the number of components. Later, the practice of adjusting the divisor was initiated to smooth out the effects of stock splits and other corporate actions.
According to this weekend’s Barron’s, the current divisors are:
Dow Jones 30 Industrial Average: .12482483
So, to illustrate the calculation of the Dow Jones Industrial Average, look at the following table:
Pretty cool isn’t it?
You can also calculate how much a particular stock is going to affect the average. For instance, today Pfizer is down 3.19 (at this writing). To find out what kind of impact that particular stock will have on the Average, you simply divide the price change by the divisor (-3.19 ÷ .12482483 = -25.56). So, Pfizer is taking away 25.56 points from the Dow Jones Industrial Average so far today. Fortunately, the rest of the components are doing okay, as the Dow is up around 95 points right now.
Now go tell all your friends and family that JLP taught you something interesting today!
Other cool stuff:
The Chicago Board of Trade on the Dow Divisor.
Rejoice and Glad!!
John Daniel Begg
Washington, District of Columbia
Tuesday, 2 Juillet, Anno Domini Nostri Iesu Christi, 2013
JOHN DANIEL BEGG
john daniel begg public affairs and speechwriting
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