How is the value of the Dow Jones index calculated

[HaxorNubcake]

I'm just wondering how they calculate the value of Stock Market Indices (like 10,778.58 points). I'm assuming it's probably quite complicated since they have to take in account splits and adjustments and such, but is there a general method/theory?

-The Nubcake part of me.

 

[edprush]

It's just the sum of the preesnt value of one share of each stock that makes up the index. The companies that make up the index can change.

 

[HaxorNubcake]

Originally posted by: edprush
It's just the sum of the preesnt value of one share of each stock that makes up the index. The companies that make up the index can change.

uh...i thought the Dow was just composed of like the top 30 bluechip companies..

edit: nvm I guess they do change, just not frequently

 

[HaxorNubcake]

Originally posted by: edprush
It's just the sum of the preesnt value of one share of each stock that makes up the index. The companies that make up the index can change.

actually, i really don't think thats right at all (thanks for the attempt). Right now the highest valued stock is IBM at ~87...multiply that by 30 and at the very highest you'll get 2610.

 

[Camby]

I believe it uses market capitalization, how big a company is, shares of stock multiplied by price.
Sum the market capitalization of all 30 companies and multiply each company's percentage by the current stock price and add those all together.

 

[HaxorNubcake]

Originally posted by: Camby
I believe it uses market capitalization, how big a company is, shares of stock multiplied by price.
Sum the market capitalization of all 30 companies and multiply each company's percentage by the current stock price and add those all together.

Hmm IIRC, the Dow is price weighted

 

[HaxorNubcake]

google ftw

thanks anyways...

for those who tried 🙂

 

[glenn1]

Hmm IIRC, the Dow is price weighted

That's more a case of it being a side effects of how it's calculated rather than something which was decided in advance. What it means in practice is that higher priced shares in the Dow can move the average far easier (a $1 up move is easier for a $100 stock than it is a $20 stock).

The way the DJIA is calculated is: 1. take the price of the individual component shares 2. add those prices together 3. then divide that figure by the current DJIA Divisor (0.12493117) 4. profit (?)