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Agreed - a price-weighted index like the DJIA doesn't make much sense for describing the aggregate behaviour of the constituents, even if it does attempt to adj
by stygiansonic 12y ago
Agreed - a price-weighted index like the DJIA doesn't make much sense for describing the aggregate behaviour of the constituents, even if it does attempt to adjust for stock splits.
A market-cap weighted index like the S&P 500 is probably a better measure.
- aganders3 12y agoI don't know much about this, but I looked them up and it's interesting how well the two compare: https://www.google.com/finance?q=INDEXSP%3A.INX%2C+INDEXDJX%3A.DJI&ei=LuD5VIrBIauxigKsjIGIDg https://www.google.com/finance?q=INDEXSP%3A.INX%2C+INDEXDJX%...
- parenthesis 12y agoYes, the calculation of the Dow Jones is a complete joke, but, funnily enough, it has tracked the fairly sensibly calculated S&P 500 surprisingly closely over time.
- maaku 12y agoNo, it hasn't. The two diverge greatly over long windows.
- stygiansonic 12y agoThe correlation between SPX and the DJIA will generally be quite high, because sampling 30 stocks (and generally those with the biggest market caps) gives you a good estimate/representation. As a result, over short periods of time, the spread between the two will be relatively small. Over long periods of time however, the spread can be significant. See the following: 1. http://avondaleam.com/dow-jones-vs-sp/ http://avondaleam.com/dow-jones-vs-sp/ 2. http://www.thumbcharts.com/101035/DJIA-vs-S-P-500 http://www.thumbcharts.com/101035/DJIA-vs-S-P-500 (Compare 1, 2, 3 and 5 years)
- bdcs 12y agoFYI, the S&P500 is weighted by float (market cap available for public trading) and not market cap, per se.