The Dow Divisor is used to calculate the Dow Jones Industrial Average (DJIA) that you hear about on the news every night. A simple numerical value, the DJIA is obtained by adding up the prices of the Dow 30 stocks and dividing this figure by the Dow Divisor.
But what genius comes up with this Divisor? In an equation too complicated to be done by any entity except a computer, the divisor evolves over time and is based on stock splits, spinoffs, and other changes in the Dow 30. This helps to ensure that such changes do not skew the numerical value of the all-important DJIA.
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Finance: What is the Dow Jones Industria...2710 Views
finance a la shmoop- what is the Dow Jones Industrial Average? well it's just
an index. it's a basket of 30 industrial stocks hence the catchy industrial word [list of the 30 stocks involved in the Dow]
in there and it was started in 1896 by Charles Dow and Edward Jones sort of the
Coke and Pepsi of stock averages in the day .worth noting is the fact that while
the Dow average is quoted often in the press it's not something that real Wall
Street traders really rely on that much as a market place holder anymore. why?
well because the Dow comprises only 30 stocks. it isn't really a broad market [Dow Jones in the trash]
representation, and you know the way the S&P 500 is the 500 is bigger than 30. Big
Brother has way more stocks and is thus way more liquid than the relatively
blippi set of 30 stocks that the Dow offers. over time the Dow has changed as
companies were bought and/or died and or just withered and became no longer
relevant. i.e. newspaper industry. which means that this thing has gone through
more faces than Kanye West .yeah. [Kanye West faces pictured]
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