Portfolio Management

Topics: Dow Jones Industrial Average, Stock market index, Stock market Pages: 8 (2670 words) Published: May 14, 2013
4.0Graphical Plot For New Index4
5.0Performance Analysis6
5.3S&P 5008

People on Wall Street found it difficult to analyze the daily jumble of up-a-quarter and down-an-eight, or whether stocks generally were raising, falling or staying even. Charles Dow a journalist devised his stock average to make sense of this confusion. He began in 1884 with eleven stocks, most of tem are railroads. Railroads were among the biggest and sturdiest companies in America at that time, which is why they denominated Dows first average. Few stocks of industrial companies were publicly traded and those were considered highly speculative. The Dow Jones Industrial Average also referred to as The Dow or DJIA, is one of the best known icons of American culture and among stock market observes around the world. The Dow Jones Industrial Average dating to 1896 is a continuous index measuring the movement of the stock market from the Spanish to American War to the present time. The original 12 stock index was broadened in 1916 to 20 stock and again in 1928 to the present number of 30 stocks and over the following years numerous substitutions were made in the components of the average. The last change was in 1939, and thus one can think of the index as being entirely cohesive for only the past fourteen years. The name of the early components is reminiscent of the industrial era at the turn of the century that is American Cotton Oil, American Spirits Manufacturing, Pacific Mail Stearnship, Standard Rope & Twine and Chicago Gas. Of the 30 names in 1982, only 18 remain include those who are removed and later put back into the average. The youngest components are AT&T and United Craft. The Dow Jones Industrial Average is an index of 30 ‘blue-chip’ US stocks. At 117 years, it is the oldest continuing US market index. It is called an average because it is originally was computed by adding up stock prices and dividing by the number of stocks. The DJIA is the best known market indicator in the world, pertly because it is old enough that many generations of investors becoming accustomed to quoting it, and partly because the US stock market is the globes biggest. In the last 10years of the 20th century, the Dow Jones Industrial Average bust through several 1000 point milestones crossing the 10000 barrier for the first time in March 29, 1999. The excitement generated by this event was felt around the world. Through the number, there is no special significance; it served to highlight the spectacular performance of the index and by extension the US economy.

The purpose of doing this assignment is:
1) To know how to constructed of the new index.
2) To compare the graph between the original prices weighted index of DJIA with newly constructed value weighted index. 3) To analyze the performance by compare the return of original DJIA price-weighted index with the major US stock indexes. 4) To determine whether the price-weighted or value-weighted for indexes affect on the stock index.

In preparing these assignments, the finding of the company data are used and collected are taken from (Yahoo Finance and YCharts.com).This is to produce the different type of graph and to analyze the market value-weighted index and price-weighted index. Reilly & Brown (2012) define value-weighted index is an index calculated as the total market value of the securities in the sample. Market value is equal to the number of shares or bonds outstanding times the market price of the security while, price-weighted index is an index calculated as an arithmetic mean of the current prices of the sampled securities. To find value-weighted index, a stock index which is computed by adding the market capitalization of...
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