Dow Jones Index
Index DJIA (Dow Jones Industrial Average) is a modern version of the world's first stock
index. The history of modern technical and graphical analysis goes back to the works and
theories of Charles Henry Dow (1851-1902). Studying the closing price on the shares, the
Dow came to the conclusion on the possible establishment of a "barometer", or
stock index, which would allow investors to quantitatively characterize the state of the
market.
The first index, calculated in July 3, 1884, was an average price of 11 shares. He
received the title "railway index» (Dow Jones Railroad Average), because 9 out of 11
shares were issued by railway companies. By 1896 the Dow industrial average has introduced
an index, which is defined as the average prices of 12 shares. Index value at closing of
the first day was 69.93 points (total value of its constituent shares at that time was
769.23). In 1928, the number of shares used to calculate the index was increased to 30, as
it remains today. NYSE (New York Stock Exchange) updates and publishes the index DJIA
every half hour throughout the trading day.
In 1928 the methodology for calculating the index was introduced by change: we introduce a
special factor (current divider - current divisor), designed to prevent the distortion of
values caused by the fragmentation of the shares (stock split), the payment of dividends,
the change in the composition of its listing.
Stock index can be characterized as the overall market, as well as a separate branch of
the economy (industry, transport and so on).
Consider the Dow Jones.
Dow Jones (The Dow Jones Industrial Average - DJIA) is calculated as the
simple average movements in share prices of the 30 largest industrial corporations (except
American Express and AT & T, which can not be regarded as purely industrial
corporations) Shares used in the index, traded on the New York Stock Exchange (NYSE) and
the order of 15-20 per cent of the total market capitalization, NYSE.
Composition of Dow Jones is not the same: the components of this index may vary depending
on the position of the largest industrial corporations in the U.S. economy and the market.
Initially, this index was calculated by 12 companies, now - at 30.
At the beginning of its history Dow Jones index was calculated as the simple arithmetic
mean of prices of shares of companies included in the listing. However, occasionally a
distorted index values occurring due to the fact that the Dow is not weighted by the
number of shares traded on the market. Therefore, from September 10, 1928 was adopted by
the "method of calculating the permanent divider. And now, Dow Jones is calculated by
adding up the prices listed in its shares at the close of the exchange and dividing this
sum by the "constant divisor" which is adjusted for the value of stock splits
and dividends in the form of shares, constituting over 10 per cent of the market value of
the issue, and also the substitution of components included in the listing, their mergers
and acquisitions.
It should also draw attention to the intensity of the growth index. The first 1000-second
threshold has overcome the index only in 1972, i.e. for 88 years! While the past two
years, he rose about 2000 points.
Transport Dow (The Dow Jones Transportation Average - DJTA) - index,
which characterizes the movement of stock prices 20 transportation companies (airlines,
rail and road companies).
Municipal Dow (The Dow Jones Utility Average - DJUA)
"responsible" for the 15 companies involved in gas - and electricity.
Dow Jones (The Dow Jones Composite Average - DJCA) is determined on the
basis of the industrial, transportation and utilities indexes (65 companies).
The climax of all three indexes is by far the Dow Jones Composite Average, which includes
65 stocks included in other indexes of the family of Dow Jones and traded on NYSE. Index's
methodology for all the time practically did not change, but included in the listing
of shares changed repeatedly. Of all the members of the stock index only General Electric
boasts an enviable stability, while the remaining shares that were then coming out of it
and generally disappeared from the market. It should be noted that the Dow Jones for a
long time did not include shares of the companies 'new economy' and their inclusion
brought the value of the index much trouble. Although it is recognized that the
incorporation to increase the representativeness of the indicator and its composition
closer to the real balance of power in the stock market USA.Futures on Dow Jones indexes
are traded in Chicago at Chicago Mercantile Exchange.