Dow Jones

Dow Jones Industrial Average:

Dow Jones the Industrial Average or the DJIA is an average weighted price of 30 significant stocks traded on the New York Stock Exchange and the NASDQ. DJIA is popularly referred to as “the Dow” and is one of the most significance index in the world.

The value of the Dow is not calculated by finding the average of the stock prices or dividend but rather the total sum of the component prices divided by a divisor-which keeps on varying depending with the component stock split or dividend thus giving a consistent value to the index.

 \text{DJIA} = {\sum p \over d}

 \text{DJIA} = {\sum p_\text{old} \over d_\text{old} } = {\sum p_\text{new} \over d_\text{new} }.

The main reason to compile the Dow is to gauge the industrial sector in relation to the American Economy. The index performance is however influenced by many factors such as:

-Political stability
-Economy harm
-Natural disasters

There are many critics about DJIA that it is an approximation and does not give an accurate representation of the overall market performance. Most critics have shown concern that it is price weighted average thus giving high priced stocks the influence above the average than the other lower priced stocks. It does not take into account the market capitalization of the other minor components.