Markets · 6 pages · 12 min
Why the Dow is an odd measuring stick
The Dow averages a short list of share prices, so a high quote counts more than a large firm.
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From the opening
The Dow Jones Industrial Average is a price-weighted average of a short list of large United States stocks, thirty names by long tradition. It is an odd measuring stick because influence follows the share price rather than the size of the company, which is not how most people mean the market when they say the word. The opening covers thirty prices enter one average, a high quote weighs more, and the divisor hides paper jumps.
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Inside
- Thirty prices enter one average
- A high quote weighs more
- The divisor hides paper jumps
- Cap weight tells another story
- Where the idea stops applying
- A distinction worth keeping
Sources
- Dow Jones Industrial Average
- Dow divisor