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''' graph of the DJIA from 1901 until today]] The Dow Jones Industrial Average (, also called the '''DJIA''', '''Dow 30''', or informally the '''Dow Jones''' or '''The Dow''') is one of several Stock Market Indices created by Nineteenth-century '' Wall Street Journal '' editor and Dow Jones & Company co-founder Charles Dow . Dow compiled the index as a way to gauge the performance of the industrial component of America's Stock Market s. It is the oldest continuing U.S. market index, aside from the Dow Jones Transportation Average , which Dow also created. Today, the average consists of 30 of the largest and most widely held public companies in the United States . The "industrial" portion of the name is largely historical—many of the 30 modern components have little to do with heavy industry. To compensate for the effects of Stock Split s and other adjustments, it is currently a Scaled Average , not the actual Average of the prices of its component stocks—the sum of the component prices is divided by a Divisor , which changes over time, to generate the value of the index. HISTORY . Two days later it rose 10.15%.]] . Exchanges were closed between September 10th and September 17th.]] First published on May 26 , 1896 , the DJIA represented the average of twelve stocks from various important American industries. Of those original twelve, only General Electric remains part of the average. The other eleven were:
When it was first published, the index stood at 40.94. It was computed as a direct average, by first adding up stock prices of its components and dividing by the number of stocks. Many of the biggest percentage price moves in The Dow occurred early in its history, as the nascent industrial economy matured.
The index closed at 71.42 on July 30, 1914 and so did the New York Stock Exchange for the next four months. Some historians believe the reason for this was worry that markets would plunge because of panic over the onset of the World War I . An alternative explanation is that Secretary of the Treasury, William McAdoo closed the exchange because he wanted to conserve the US gold stock in order to launch the Federal Reserve System later that year with enough gold to keep the US on the gold standard. That first day it reopened on December 12 , 1914 , the index closed at 74.56, thus the War had not had the predicted impact. In 1916, the number of stocks in the index was increased to twenty and the new version of the index was 27% smaller than the old index. Finally, it was increased to thirty stocks in 1928, near the height of the "roaring 1920s" Bull Market . The Crash Of 1929 and the ensuing Great Depression returned the average to its starting point, almost 90% below its peak, by July 8 , 1932 . The highs of September 3 , 1929 would not be surpassed until 1954.
The 1980s and especially the 1990s saw a very rapid increase in the average, though severe corrections did occur along the way.
The uncertainty of the early 2000s brought a significant Bear Market .
''Note:'' For current record highs, please see Closing Milestones Of The Dow Jones Industrial Average . CRITICISM With the current inclusion of only 30 stocks, some argue the DJIA cannot function as an index of overall market performance even though it is the most cited and most widely recognized of the stock market indices. Historically, though, it has performed very much in line with the broader U.S. market. Additionally, the DJIA is criticized for being a Price-weighted average, which gives relatively higher-priced stocks more influence over the average than their lower-priced counterparts. For example, a $1 increase in a lower-priced stock can be negated by a $1 decrease in a much higher-priced stock, even though the first stock experienced a larger percentage change. Many critics of the DJIA recommend the float-adjusted market-value weighted S&P 500 or the Dow Jones Wilshire 5000 , the latter of which includes all U.S. securities with readily available prices, as better indicators of the U.S. market. Another issue with the Dow is that not all 30 components open at the same time in the morning. Only a few components open at the start and the posted opening price of the Dow is determined by the price of those few components that open first and the previous day's closing price of the remaining components that haven't opened yet; therefore, the posted opening price on the Dow will always be close to the previous day's closing price (which can be observed by looking at Dow price history) and will never accurately reflect the true opening prices of all its components. Thus, in terms of Candlestick Charting Theory , the Dow's posted opening price cannot be used in determining the condition of the market. ''Wall St. Journal'', 28 February 2007, After a Rough Morning, A Data Backup Jolts The Blue-Chip Average The , 2 March 2007, Investigation into NYSE system failure COMPANIES COMPRISING THE DJIA The individual components of the DJIA are occasionally changed as market conditions warrant. They are selected by the editors of ''The Wall Street Journal''. When companies are replaced, the scale factor used to calculate the index is also adjusted so that the value of the average is not directly affected by the change. On November 1 , 1999 , Chevron , Goodyear Tire And Rubber Company , Sears Roebuck , and Union Carbide were removed from the DJIA and replaced by Intel , Microsoft , Home Depot , and SBC Communications . Intel and Microsoft became the first two companies traded on the NASDAQ exchange to be listed in the DJIA. On April 8 , 2004 , another change occurred as International Paper , AT&T , and Eastman Kodak were replaced with Pfizer , Verizon , and AIG . On December 1 , 2005 AT&T 's original T symbol returned to the DJIA as a result of the SBC Communications and AT&T merger. The Dow Jones Industrial Average consists of the following 30 companies:http://www.djindexes.com/mdsidx/index.cfm?event=components&symbol=DJI Calculation To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a Divisor . The divisor is adjusted in case of splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. The initial divisor was the number of component companies, so that the DJIA was at first a simple arithmetic average; the present divisor, after many adjustments, is less than one (meaning the index is actually larger than the sum of the prices of the components). That is: : where ''p'' are the prices of the component stocks and ''d'' is the Dow Divisor. Events like stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow divisor is updated so that the quotations right before and after the event coincide: : SEE ALSO
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