What is the Dow Jones Industrial Average (DJIA)? Give a description of why the DJIA was first created, how it is computed, and how it has evolved over time.
What will be an ideal response?
The DJIA currently consists of 30 stocks, which are widely held by individuals and institutional investors. This list can and does change from time to time, as determined by the editors of The Wall Street Journal. It was created by Charles H. Dow, and it first appeared on May 26, 1896. Dow took eleven stocks, summed their prices on a particular day, and then divided by eleven. This average price was the DJIA. At the time that Dow originally computed the DJIA, the stock market was not highly regarded in the U.S. Investors were more interested in bonds than stocks, and many thought that those in charge on Wall Street manipulated stock prices to their advantage. Dow created the DJIA to convey some information about what was happening in the stock market, and chose the original stocks because he thought that they would mirror what was happening in the stock market as a whole. The DJIA is currently computed by summing the prices of the thirty stocks and dividing by a special divisor (which is used to avoid distortions that can occur, such as stock splits).
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