In effect, the stocks with higher share prices can have a disproportionate impact on the performance of the index relative to those with lower share prices.

the contribution of an individual security is in proportion to their market capitalization (or “market cap”).

The Dow Jones (DJIA) is a price-weighted index, contrary to the S&P 500, which is capitalization weighted, i.e. Dow Jones Industrial Average (DJIA): Index Methodology government issued bonds) if the near-term outlook on the public markets implies an economic contraction, or recession, could perhaps be on the horizon. negative beta) and risk-free securities (i.e. Hence, there tends to be a significant flow of capital into gold (i.e.

Why? Most participants in the stock market are not constrained to investing in publicly-traded equities.įor the sake of managing risk, most investors – especially institutional investors, such as a hedge fund – diversify their portfolio holdings across different asset classes. companies and is used as a proxy to measure the current state of the broader financial market as a whole (and economy).ĭespite the fact that the Dow Jones only tracks publicly-traded equities, the performance of the index has broad implications across practically all asset classes, such as the bonds, real estate, and commodities. The Dow Jones index (DJIA) tracks thirty large-cap, public U.S. stock market (and economy) at present, which in turn, is used to form an opinion on the outlook of the markets. In practice, the Dow Jones (DJIA) functions as a “barometer” to grasp the conditions in the U.S. The Dow Jones (DJIA), or “Dow Jones Industrial Average”, is a price-weighted stock market index tracking the share price movements of 30 publicly traded, blue-chip companies.Įstablished in 1896, the Dow Jones Industrial Average (DJIA), or simply the “Dow Jones”, was one of the first stock indices created to serve as a performance indicator of the stock market.Ĭurrently, the Dow Jones Index ($DJIA) has remained one of the most widely followed indicators of stock market performance.

What is the current dow jones index