Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 large well-known industrial stocks listed on New York Stock Exchange (NYSE). The component stocks are:
You are required to use the above 30 companies to construct a rival value-weighted index at daily frequency for the period from Jan 1 to Jan 31, 2013. To do that, you need to collect the relevant market capitalization data (or closing prices*number of outstanding shares) for these 30 companies. The structure of your written report should be as follows: 1) Introduction: Provide a brief background of DJIA. 2) Objective: Specify the objective of your assignment, and provide justifications for the construction of a rival index. 3) Methodology: Explain briefly how the new index is to be constructed. 4) Graphical Plot of New Index: Plot the newly constructed valueweighted index, and compare with the graph for the original DJIA price-weighted index over similar sample period (1/1-31/1/2013). Explain also why differences arise in the time series plot of both indexes. 5) Performance Analysis: Track the percent changes of the newly constructed value-weighted index. Compare its return performance with the original DJIA price-weighted index, and other major US stock indexes. You are expected to elaborate on the findings. 6) Conclusion Do take note that the workings for the construction of the new index should not be included in the written report. Instead, all the workings are to be shown clearly in your Microsoft Excel file.
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