Dow
Jones is a small mental hospital
Bankruptcy of GM in addition to the mass of the known and has one more: the company's
stock will be excluded from the index Dow Jones Industrial Average. At the same time for
distribution come and share the financial group Citigroup. They were replaced by paper
manufacturer of telecommunications equipment from Cisco and insurance company Travelers.
Special humor of the situation that Travelers - a former division of Citi, at one time
separated from the group as a separate business because of "low profitability. Citi
is its high profitability finish prior to the effective nationalization and exclusion from
"major league" of corporations. However, the chance to return to the index in
the two companies have - if, after the restructuring and new privatization, they will once
again become major players in the market with good performance.
Actually, this story - a good reason to talk about the index of Dow Jones. We all used to
this name, many of us follow the change in the index. And some of our readers probably
also trades derivatives on the Dow trading. But few people remember what it actually is.
It is believed that the stock indices show the average temperature of the mental hospital
of the stock market in the country or specific industry. But how exactly do they do it?
Method of calculating current indices are widely known. Take the portfolio of some traded
on the LSE market, in which each paper has a certain weight. Its value at the initial time
is taken, for example, for 100 points, and then calculates its new value based on changes
in stock prices. The question is, what papers to take and in what proportion. This is
solved by a special committee, with a maximum weight of each paper in the index is
limited, despite its real market share. Periodically there is a "reshuffle" the
index composition and weight of paper. Typically, every change is minimal and at the
moment almost no effect on the index, although at long intervals of time, of course, the
impact of changes increases.
Index Dow - is another matter. Like many in the U.S., it is very archaic. Considered
primitive: take the price of 30 shares in public companies, which in the opinion of the
committee to make the fullest represent the U.S. economy, are added and divided into only
a special rate. 's All. No weights, no restrictions. The coefficient is calculated
according to different market events - the separation (split) or the merger of shares,
etc. At the moment coefficient (it is called "DJIA-divider") is equal to
0.1255527090. I.e. fact, the sum of the prices of 30 shares is not divided, but multiplied
by about 7,965.
Index Dow - a very fickle thing in composition. Shares in him enter and leave the ball in
the pot with Winnie the Pooh. Therefore, in general, rather strangely perceive schedule
index as something continuous and consistent over many years. From the initial set had
stayed there exactly one company, but for the past 20 years, for example, occurred on 24
changes, excluding changes in the divisor. This, recall, of the 30 available in the index
securities. This method of calculation provides plenty of opportunities for manipulation
of the index.
In fact, the index Dow (as indeed are other sectoral indices) can be regarded only as a
kind of extremely conventional "thermometer" that shows not just the average
temperature in the hospital, but the temperature in the hospital where patients are
constantly changing - who in the morgue, who to be discharged. Moreover, the hospital of
this rather small (only 30 beds), so changes in the temperature of individual patients
strongly affect the overall rate.
Alternatively, you can use the DJIA S & P500 - is a more modern formula for
calculating the index. It takes into account the stock price 500 companies, with the
weight of each security in the index depends on the total capitalization of the company
and the share of its stock freely traded in the market. Accordingly, the degree of
"voluntarism" in the index is much smaller than in the DJIA, it is much more
"mathematical".