On the basis of the market value of shares of different analyzes and assessment of the market.In this process, a key position is occupied stock indexes.What is a stock market index?This number reflects the dynamics and the level of prices for the shares included in the stock exchange listing for a certain time.Each stock exchange its stock indices: Dow Jones (DJI) at New York, the Nikkei (Nikkei) from the Japanese, Dax (DAX) from the German, etc.In this article we look at the very first of the emerging indices - industrial index DJI.
appearance of
American Dow Jones index was invented by Charles Dow in late May 1896 to track changes in the industrial component of the stock markets.Initially, the index includes 12 companies.Now that number has reached 30. These companies enter into all industries, except for transport, energy and water.Companies engaged in the selection of Charles Dow himself, and then he began to make principal analyst and editor of the "Wall Street Journal".The composition of the index includes companies such as "Coca-Cola", "Microsoft", "Walt Disney", "Intel", "McDonald's" and others.
calculation
Initially, the Dow Jones index was calculated by the simplified system: it was the average sum of the prices of shares included in his companies.Currently the index is considered to be different.The formula is quite simple: the sum of the value of shares included in the divided correction factor (the Dow divisor).This divisor is the number of companies included in the index.Due to this formula is converted to the arithmetic mean.But after a while events such as a change in the list of companies and splits (division of shares) significantly affected the Dow divisor.At present, its value is less than 1, ie the value of DJI greater than the sum of the included shares.The point was to change the divider that no significant events had no effect on its value and it remained the same.For this subgroup and change.
Benefits
1. Easy (with the advent of the divider calculation was a little more difficult) and ease of calculation.
2. The long history.Dow Jones - a symbol of America's stock market.An analysis of its dynamics on such a wide span of time opens the theorists and practitioners rather opportunities.
Disadvantages
1. Dow Jones index shows the average price of shares, not comparing them to the base value.Therefore, it must be viewed in relation to a certain value, which would serve as a basis for comparison and was tied to a specific date.
2. The most significant drawback - it is a way to calculate it, in which add up the share price of companies included in it, and then the total sum is divided by the correction factor (the Dow divisor).As a result, even if the capitalization of one less than the other, but with the price of its shares above, it has an index greater effect.
3. Include a total of 30 companies, the Dow Jones index looks not very good in the role of the index, reflecting the overall activity of the stock market.Sometimes, for greater objectivity, together with DJI analysts use the S & amp; P 500.
