Definition
The Dow Jones Industrial Average, or simply the Dow, is a stock market index that shows how 30 large, publicly owned companies based in the United States have traded during a standard trading session in the stock market.
Dow Jones Industrial Average – DJIA
The Dow Jones Industrial Average, also referred to colloquially as the Dow, The Dow Jones, The Dow 30, DJIA, the Industrial Average and the Dow Joines Industrial, is (along with NASDAQ Composite) arguably the most well known stock market index in the world.
History
DJIA bears the index founders’ names. i.e. Charles Dow and his business partner Edward Jones, and was created in 1896 with the intention of serving as a barometer for the U.S. economy as a whole. At its initiation, there were only a dozen purely industrial companies and a majority of them belonged to the energy, sugar, railroad, and cotton sectors.
As of today, only G.E. (General Electric) has survived from the original list of companies that comprised the index almost exactly 120 years ago.
The index has grown from strength to strength over the intervening decades and has changed its portfolio (also called components) a grand total of 51 times within the past 12 decades. Its last change was as recent as March last year when the telecommunications giant AT&T was replaced with Apple Inc.
Stock Market Index
A stock market index can be described as a “measurement of the value of a section of the stock market.” It is calculated from a basket of diverse stocks from different industries (usually) through the help of the weighted average method. Both investors as well as financial pundits use it as an instrument to compare and understand the market and determine which stock portfolio would be able to give the highest yields.
Weighted average
The Dow Jones index average is primarily a ‘price-weighted’ index, however it’s now a scaled average so as to be able to compensate for stock spills as well as other necessary adjustments. The values of different stocks that Dow portrays are not the actual average of the prices of various stocks that comprise the index, but they are the combined sum of all the stock prices of the index that are divided by an interminnent devisor whose value changes whenever there is a stock spill or a declared dividend. This is done to create a consistent overall value for the Dow Jones index.
Further Reading
- Low q-moment multifractal analysis of Gold price, Dow Jones Industrial Average and BGL-USD exchange rate – link.springer.com [PDF]
- Low-order variability diagrams for short-range correlation evidence in financial data: BGL-USD exchange rate, Dow Jones industrial average, gold ounce price – www.sciencedirect.com [PDF]
- Large shocks in the volatility of the Dow Jones Industrial Average index: 1928–2013 – www.sciencedirect.com [PDF]
- The introduction of derivatives on the Dow Jones Industrial Average and their impact on the volatility of component stocks – onlinelibrary.wiley.com [PDF]
- Evidence of a random multifractal turbulent structure in the Dow Jones Industrial Average – www.sciencedirect.com [PDF]
- Detecting predictable non-linear dynamics in Dow Jones Islamic Market and Dow Jones Industrial Average indices using nonparametric regressions – www.sciencedirect.com [PDF]
- Information costs and liquidity effects from changes in the Dow Jones Industrial Average list – www.jstor.org [PDF]
- Power-law correlations in finance-related Google searches, and their cross-correlations with volatility and traded volume: Evidence from the Dow Jones Industrial … – www.sciencedirect.com [PDF]
- Detecting macroeconomic phases in the Dow Jones Industrial Average time series – www.sciencedirect.com [PDF]
- Liquid betting against beta in Dow Jones Industrial Average stocks – www.tandfonline.com [PDF]
