Dow jones industrial average definition
The Dow Jones Industrial Average was created in 1896 by Charles Dow and his business partner Edward Jones. Consequently, the index often gets shortened to Dow Jones.
Originally the index only contained 12 quoted companies, mainly in the industrial sectors, but by 1928 the DJIA expanded to thirty companies. It was a spin-off from the Dow Jones Transportation Index.
The DJIA is a price-weighted index. Meaning it’s value is calculated using a divisor, which is a predetermined constant used to assess the effect of a one-point move in any of the stocks that make up the index. The DJIA’s value reflects the sum of all the components share prices, divided by the divisor. A single point change in any companies’ stock price moves the index by an equal number of points.
This is in contrast to a capitalisation-weighted index, like the SPX 500, which is calculated using a weighted average of the component firms’ market capitalisation.