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What is the Dow Jones Industrial Average (DJIA)?


The term 'Dow Jones Industrial Average (DJIA)' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

The Dow Jones Industrial Average, commonly referred to by its acronym DJIA, is also many times called the Dow 30, the Dow Jones, the Dow, or even just the Industrial Average. It proves to be the second oldest stock market index in the Untied States after the Dow Jones Transportation Average. The Dow Jones Industrial Average came into being when Charles Dow, the co founder of Dow Jones and Company worked with a business colleague Edward Jones, a statistician, to come up with an index that monitors the industrial sector. This index demonstrates the daily stock market trading session progress of thirty of the largest companies that are publicly traded within the U.S.

Ironically, most of the present day thirty companies listed in this index no longer have much or even anything to do with the historical definition of heavy industry. The components in the average are weighted by price and scaled in order to adjust for the impacts of stock splits and varying other forms of adjustments. This means that the total value that you see in the daily representation of the Dow Jones does not prove to be the true average of the different company stock prices.

Instead, it is the total of such company prices that are added up and then divided by a special divisor. This divisor is a number that is adjusted any time one of the company stocks underlying it pays a dividend or engages in a stock split. In this way, the index presents a constant value that is not altered by the external factors of the component stocks.

The Dow Jones Industrial Average remains one of the most heavily followed and carefully watched indices in the American stock market, along with peers the S&P 500 Index, the NASDAQ composite, and the Russell 2000 Index. The founder Dow intended for the index to monitor the American industrial sector’s actual performance. Even so, the index is constantly affected by much more than simply the economic and corporate reports issued. It responds to both foreign and domestic incidents and political episodes like terrorism and war, as well as any natural disasters that might cause economic damage.

The Dow Jones Industrial Average’s thirty components simultaneously trade on either the New York Stock Exchange Euronext or the NASDAQ OMX, which are the two largest American stock market outfits. Derivatives based on Dow components trade via the Chicago Board Options Exchange, as well as with the Chicago Mercantile Exchange Group. The latter is the largest futures exchange outfit on earth, and it presently owns fully ninety percent of the Dow Jones founded indexing business, along with this Industrial Average.

Investors who are interested in gaining the ability to track the progress of the Dow Jones Industrial average have several choices. There are index funds that buy the components of the index so that you do not have to own all thirty companies yourself. You might also invest in the Dow 30 by purchasing shares of the Exchange Traded Fund known as the Diamonds ETF. This trades under the AMEX exchange via the symbol DIA. Finally, you could by options and futures contracts based on the performance of the Dow Jones Average on the Chicago Board of Trade.

The term 'Dow Jones Industrial Average (DJIA)' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.