Posted in Finance, Accounting and Economics Terms, Total Reads: 264
Definition: Dow Jones Industrial Average – DJIA
The Dow Jones Industrial Average, is an index for stock markets and one of many indices started by the Wall Street Journal editor and co-founder of Dow Jones & Company Charles Dow. May 26, 1896 is the day when the industrial average was first calculated. Today it is owned by S&P Dow Jones Indices, of which majority stakes are owned by McGraw-Hill Financial, it is the most noticeable of all the Dow Averages.
The averages are named after Dow and statistician Edward Jones, his business associate. It is an index that represents the way in which 30 largest companies, which are publicly owned and based in the US have traded during a standard trading session in the share market. It comes second oldest after the Dow Jones Transportation Average of the U.S. market, which had also been created by Dow. DJIA is also known as the Industrial Average, the Dow Jones Industrial, the Dow Jones, the Dow 30 or the Dow.
The Industrial word in the name has historical connotations, and most of the modern 30 companies have nothing to do with heavy industry. The average is calculated as price-weighted. Moreover, to make-up for the effects of stock splits, it is nowadays a scaled mean. Important thing to note is that the value of the Dow is not really the actual mean of the prices of its constituent stocks, but it is the addition of the constituent prices divided by a divisor, which is modified whenever there is a stock split or stock dividend for one of the components, so that a consistent value for the index is generated. Observing that the divisor is less than one, the index-value is greater than the addition of the constituent prices. The Dow is generally calculated to analyse the performance of the industrial sector which is a part of the US economy, its performance is influenced by management and financial reports, domestic and international happenings for example, war and terrorism. It is also influenced by natural disasters which may hurt the economy.