Monday, July 27, 2015

What is a 'Price Weighted Index'?

Dow Jones Industrial Average is a 'Price Weighted Index', unlike other Stock Indices which are 'Value Weighted Indices'. What is a Price Weighted Index?

Price Weighted Index is defined as a stock index in which each stock influences the index in proportion to its price per share. The value of the index is generated by adding the prices of each of the stocks in the index and dividing them by the total number of stocks. Stocks with a higher price will be given more weight and, therefore, will have a greater influence over the performance of the index. Here, the weightage of its 30 constituents is based on the price of the stock and not its market capitalisation.

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