Essay: DJIA/Dow Jones Industrial Average/The Dow

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  • Subject area(s): Finance essays
  • Reading time: 2 minutes
  • Price: Free download
  • Published on: October 23, 2015
  • File format: Text
  • Number of pages: 2
  • DJIA/Dow Jones Industrial Average/The Dow
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DJIA is known as Dow Jones Industrial Average or also referred to as The Dow. It is founded by Charles Dow which co-founders along with Edward Jones of Dow Jones & Co in year 1882. In 1889, they founded The Wall Street Journal which remains one of the most influential financial publications. DJIA is one of the most watched stock indexes in the world. Besides that, the first stock market index was created by one of the co-founder, Charles Dow. In 1896, DJIA was legitimately launched in The Dow Jones newspaper, The Wall Street Journal. They published the first industrial average (DJIA) which consisting of 12 stocks closing at 40.94 during May 1896 while it falls to 0.18 to close at 28.48 and thus this was the lowest close in DJIA history. The DJIA originally had 12 stocks which including a leather maker, a sugar producer and a steel provider. After that in 1916, the DJIA stock index was expanded to 20 stocks and it had increase to 30 stocks in 1928. (McGraw Hill Financial, 2015)At the same year, the average with a divisor which is other than the number of stock was calculated by the journal editors. This used to prevent and avoid the distortions when constituent companies split their shares. Thus, the index was still identified as average through this matter. In addition, the 30 stocks now included in the Dow Jones Industrial Average are all the major factors in their industries. This was held by the most of the institutional and individual investors. Today, the only one stock in The Dow which still included in the original 12 stocks is General Electric (GE).
2.0 Objective
Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 large industrial stocks which listed on New York Stock Exchange (NYSE). Through the research project, we need to calculate the value-weighted index and also the price-weighted average for the DJIA, S&P 500 as well as NASDAQ. This is because the stock indices can be more accurate by using the measurement of weighted average. Price-weighted average is each stock will affected to the index in proportional towards the price share while value-weighted index can defined as a stock market index which determined by market capitalization (Operations Department, 2009).
The objective of this research project as following:
i. To examine the return performance of VWI with other weighting schemes.
ii. To construct a rival value-weighted index as well as evaluate on the graph at daily frequency from 1st January until 31st January 2015.
iii. Analyze the performance to the new value-weighted index compared to original DJIA price-weighted index, S&P 500 index and NASDAQ index.
From the objectives above, we can found out the more valuable stock to invest in order to get more profit return from the investment. Besides the measurement for value-weighted index and price-weighted index, we also use the closing price and the share outstanding in order to evaluate and measure the market capitalization for all 30 companies in a month. This is because all the changes will be happened at the end of month as well as to avoid any relevant conflict regarding the changes of composite index.
Therefore, all the result that we evaluated for the 30 companies will be showed in the Microsoft Excel file which attached together with this research project and the 30 companies were stated in the Appendix below.

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