Dow Jones Industrial Average

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Definition:
An index of the shares of thirty industrial US-based companies.


The Dow Jones Industrial Average (DJIA), is probably the most famous stock index in the world.

[edit] History

First created by Charles Dow in 1896, it was originally made up of twelve stocks, through the years this became twenty, and now consists of 30 of the top blue chip companies.

Only one company remains in the index from the beginning - General Electric.

[edit] The 12 original constituents

  • Amercian Cotton Oil
  • Amercian Spirit
  • American Sugar
  • American Tobacco
  • Chicago Gas
  • General Electric
  • Laclede Gas
  • National Lead
  • Pacific Mail
  • Standard Rope & Twine
  • Tennessee Coal & Iron

[edit] Calculation

The index is unusual in that it is weighted by price. It is calculated by adding up all the prices of the 30 stocks and dividing by an arbitrary divisor.

The divisor started off at 30, but over time this has been adjusted to reflect capital changes such as stock splits and is currently about 0.2.

Consequently companies with the highest stock values have the great influence, and not those with the largest market values - which comes as a suprise to many people.