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Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) the oldest and best known stock market index in the world. It includes the stocks of 30 top companies of leading United States industries.

More About Dow Jones Industrial Average (DJIA)

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What is Dow Jones Industrial Average (DJIA)?

Dow Jones Industrial Average is a stock market index that is the price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and NASDAQ over a period of time. In other words, it captures changes in share prices of 30 large, well-known U.S. companies and range from the largest to the smallest selections in the Depository Trust Company (DTC) Pricing Guide, which lists the individual securities monitored by Standard & Poor's (S&P).

Fact about Dow Jones Industrial Average(DJIA)

The term "Dow Jones" is derived from the first stock index of the same name, developed by Charles Dow in 1896. Initially a simple average of prices of twelve railroad stocks that were selected by Dow, the DJIA has become a famous measure of how shares of publicly traded companies based in the United States have performed. Today it includes 30 components ($12 trillion market cap), making up just one third of the value of the average U.S. stock market's total capitalization.

How does DJIA work?

The Dow Jones Average is a price-weighted index. That means an increase in the price of an individual stock within the index causes the index to go up. Conversely, when the price of a stock decreases within the index, the index will decrease as well. The DJIA was created over 100 years ago by Charles Dow and shows how 30 of the largest industrial corporations in America are performing financially. It is not a perfect measure but it is widely used and continues to be relevant today.

The Dow Jones Industrial Average is a number that shows how much America's leading businesses are worth. The Dow, as it is often known (after the founder of one of the companies that has been in it since the beginning), is one of several indexes created by Charles Dow. There's an index to show how big US companies are compared to world ones, and a price index to show how well these shares are doing in general.

Pros

The DJIA is often used as a barometer for the stock market. It includes 30 of the largest and most influential publicly held U.S. companies, representing various industrial sectors. Because it's considered a gauge of the overall stock market, it is sometimes called "The Dow." Certain financial instruments such as futures and options contracts are based on its movements. And, the index is often used in determining the size of a company's pension fund or to help establish value for a company in a merger or acquisition situation.

Cons

The Dow Jones Industrial Average, or DJIA for short, is an index that measures the average market prices of 30 large, publicly owned companies. As a market measure, it can tell investors the overall direction of stock markets, when to buy or sell certain stocks, as well as predict how the economy is doing.