LeoGlossary: Dow Jones Industrial Average (DJIA)
The best known of all stock markets. It is comprised of 30 stocks, often called blue chip. These stocks are traded on the New York Stock Exchange. This is commonly thought to be a reflection of how the largest companies in the country are doing.
The Dow Jones Industrial Average (DJIA) is a price-weighted index, meaning the value of the index is calculated based on the stock prices of its constituent companies rather than market capitalization. The DJIA was first calculated on May 26, 1896, making it one of the oldest U.S. market indices. It is maintained by S&P Dow Jones Indices and is considered by many professionals to be a limited representation of the overall U.S. stock market compared to broader indices like the S&P 500.
History
The Dow Jones Industrial Average (DJIA), also known as the Dow Jones Industrial index, is a significant and historic stock market index that holds immense influence in the financial world. As a price-weighted average, it represents the value of 30 highly influential stocks traded on the New York Stock Exchange (NYSE) and NASDAQ, making it one of the oldest and most closely observed U.S. equity indexes.
The Dow Jones Industrial Average was established in 1896 by Charles Dow and Edward Jones, who also founded the Wall Street Journal. Initially, the index consisted of 12 prominent companies from essential industries, including railroads, tobacco, oil, and sugar. The calculation of the index was straightforward: the stock prices of the 12 companies were added together and then divided by 12.
Over the years, the Dow Jones Industrial Average has evolved to maintain its relevance and representativeness of the U.S. economy. The number of component stocks has grown from 12 to 30, and the types of companies included have expanded to reflect changes in the economy. For instance, the index added its first utility company in 1928 and its first transportation stock in 1976.
Adjustments have been made to the Dow Jones Industrial Average to account for stock splits, spinoffs, and other corporate actions. In 2012, the index underwent a significant revision, replacing three of its component stocks with three others to ensure a more accurate portrayal of the U.S. economy.
Today, the Dow Jones Industrial Average remains one of the most widely followed and recognized equity indexes globally. It offers a valuable snapshot of the health of the U.S. stock market and economy. Despite its limitations, such as the inclusion of only 30 stocks, it remains a crucial benchmark for investors and market watchers alike.
Qualifications
To be considered for the DJIA, a corporation:
- Must be incorporated and headquartered in the US
- Derive a plurality of revenues from the US
- Help make the Dow representative of the overall US economy (less transportation and utilities)
- Attract a large number of investors
- Demonstrate sustained growth
- Have an excellent reputation
List of DJIA Companies:
Posted Using InLeo Alpha
