Dow Jones index

(noun)

It is an index that shows how 30 large publicly-owned companies based in the United States have traded during a standard trading session in the stock market.

Related Terms

Examples of Dow Jones index in the following topics:

  • Inputs

    • Examples of time series are the daily closing value of the Dow Jones index or the annual flow volume of the Nile River at Aswan.

  • Market Reporting

    • A stock index or stock market index is a method of measuring the value of a section of the stock market.
    • An index is a mathematical construct, so it may not be invested in directly.
    • Many mutual funds and exchange-traded funds attempt to "track" an index.
    • A 'world' or 'global' stock market index includes (typically large) companies without regard for where they are domiciled or traded.
    • A 'national' index represents the performance of the stock market of a given nation—and by proxy, reflects investor sentiment on the state of its economy.

  • Special Derivatives

    • Several financial institutions offer futures and options that are based on a market index, such as the Dow Jones Industrial Average and S&P 500.
    • For example, the Chicago Board of Options Exchange (CBOE) offers options on the Dow Jones Industrial Average, which it calls DJX.
    • For example, a fund manager could buy 1,000 shares each of every company listed in the Dow Jones Industrial Average and let investors buy into the fund.
    • Instead, the financial companies base the stock market index on a computed stock market index and settle accounts in cash.
    • The Nikkei stock index fluctuated around 20,000 points in 1995.

  • Securities Market Institutions

    • Financial analysts compile market indices that measure broad movements in a financial market.Most popular and the oldest stock market index used today is the Dow Jones Industrial Averages, otherwise known simply as the "Dow" or "the industrials. " The Wall Street Journal invented the Dow in 1882, and it calculates the Dow by a weighted average of 30 representative stocks of New York Stock Exchange.The Dow includes Coca-Cola, IBM, Proctor & Gamble, and Exxon.Analysts at the Wall Street Journal adjust the Dow for corporate mergers, corporate bankruptcies, and stock splits.Another popular market index is Standard and Poor's 500 (S&P 500).Standard & Poor's index includes 500 stocks that are listed on the Stock Market Exchange.We list the major stock exchanges in the world in Table 1 along with their market indices.
    • Market indices provide two benefits.First, the market indices provide fast information.Financial analysts calculate a market index in seconds and distribute the index to investors instantly.Second, private companies calculate the market indices.Thus, government does not influence the numbers.
    • Stock market crash became the prelude to the Great Depression.In 1929, the stock market crashed on October 24, October 28, and October 29.Afterwards, the unemployment rate peaked at 26% in the United States.Moreover, the New York Stock Exchange crashed on October 19, 1987.The Dow Jones fell by 508 points (or 27.8%) in one day, the largest loss in U.S. history.However, the United States did not enter a recession because the Federal Reserve came to the rescue, providing emergency loans to the financial institutions.Then the United States experienced a stock market crash in March 2000, which triggered the 2001 Recession.Many people call this the dot-com crash because stock value for many internet companies became worthless overnight.Finally, the U.S. experienced the 2007 Great Recession, which became the most severe recession since the Great Depression.Your author calls this the 2008 Financial Crisis, when pandemonium struck the financial world.
    • When investors see the Dow Jones soaring, they invest more money into the stock market.As investors dump more money into the stock market, the stock prices continue rising.If investors see the stock market prices began falling, then they pull their money out of the stock market, and stock prices continue falling.If stockholders become afraid, they cash in all their stocks at once, causing thestock prices to plummet.Thus, the market moves in cycles, being driven by public's psychology and their expectations about future stock prices.

  • Answers to Chapter 5 Questions

    • The Dow Jones Average is an average of the top, blue-chip stocks on the New York Stock Exchange.
    • However, a market index shows a trend of stock prices.

  • Chapter Questions

    • Please explain the purpose of the Dow Jones Industrial Average and its usefulness.

  • Historical Returns: Market Variability and Volatility

    • For example, the Dow Jones Industrial Average (DJIA) has generally followed an upward trend from 1900-2009 .
    • The Dow Jones Industrial Average has generally increased overall since 1900, but its past performance is not a guarantee of future performance.

  • Value of a High Dividend

    • The Dogs of the Dow strategy is a well known and rather extreme strategy that incorporates high dividend yields.
    • The strategy dictates that the investor compile a list of the 10 highest dividend yielding stocks from the Dow Jones Industrial Average and buying an equal position in all 10 at the beginning of each year.
    • At the end of each year, the investor finds the 10 highest dividend yield stocks again, and reallocates their positions so as to have an equal position in all 10 Dogs of the Dow.
    • The Dogs of the Dow made a compounded annual return of 18% from 1975 to 1999 outperforming the market by 3%.
    • Proponents of the Dogs of the Dow strategy argue that blue chip companies do not alter their dividend to reflect trading conditions.

  • The SML Approach

    • The Security Market Line for the Dow Jones Industrial Average over a 3 year period, with the x-axis representing beta and the y-axis representing expected return.