Dear jackk,
Thank you for your question.
The simple answer... add up the prices for the 30 stocks and divide by
"the divisor". Originally the divisor would have been 12 for the 12
initial stocks used to calculate the Dow Jones Industrial Average.
However, the divisor has been changed to compensate for stock changes,
number of stocks, stock splits and company spinoffs and is currently
around .15. The calculation is performed in real-time during U.S.
stock exchange trading hours ie as any component stock price changes
the Dow Jones Industrial Average is recalculated to reflect the
change.
http://www.djindexes.com/jsp/avgMethod.jsp
______
www.djindexes.com Frequently asks questions provides a simple example
of a divisor change:
“…Assume three stocks selling at $5, $10 and $15. Their average price
is $10. Now assume the $15 stock is split three-for-one, and the stock
subsequently sells for $5. Nothing has happened to the value of an
investment in these shares but the average of their prices now is
$6.67, not $10. An adjustment must be made to compensate so that the
"average" will remain at $10. This can be done various ways
mathematically, but at Dow Jones it is handled by changing the
divisor, or the number that is divided into the total of the stock
prices. In this example, the new divisor would be 2 instead of 3.”
http://www.djindexes.com/jsp/avgFaq.jsp#q6
______
The 30 stocks are chosen by the editors of the Wall Street Journal
with no pre-established criteria other than they are established
industry leaders. Here are the current 30:
http://www.djindexes.com/downloads/djind.pdf
______
Some history of the Dow from Cool Fire technology:
http://www.cftech.com/BrainBank/FINANCE/DowJonesAvgsHist.html
_____
There are many Dow Jones Indexes describing different subsets of
stocks. Index Funds has a short description of the major indices:
http://www.indexfunds.com/DowJones/DJmeth.htm
_____
Dow Jones Averages 2000 Annual Report has interesting historical
statistics:
http://averages.dowjones.com/downloads/DJA_Part2.pdf
More than you probably wanted to know about Dow Jones Style Index
calculations, but it gives a good description of index management.:
http://www.styleadvisor.com/support/download/StyleRulebook.pdf
_____
Style strategy:
"dow jones" calculation explanation
dow jones industrial average divisor
Please select clarify answer if you would like further research.
Regards, |
