Dow Divisor

DEFINITION of 'Dow Divisor'

A numerical value computed by Dow Jones Indexes that is used to calculate the level of the Dow Jones Industrial Average (DJIA). The Dow Divisor is critically important in calculating the level of the DJIA, which is obtained by summing up the prices of its 30 component stocks and dividing this figure by the Divisor.

The Dow Divisor is used to maintain the historical continuity of the index, since there have been numerous stock splits, spinoffs and changes among the Dow constituents since the index was first introduced in 1896. The Divisor is continually adjusted to account for these changes, since the value of the Dow would be distorted otherwise.

BREAKING DOWN 'Dow Divisor'

The value of the Dow Divisor has changed significantly over the years. For example, it was at 16.67 back in 1928, but was at 0.132129493 as of July 2010. The values of the Dow Divisor as well as divisors for the other Dow Jones indexes are published daily in The Wall Street Journal.


For example, if the sum of the prices of the 30 constituents of the DJIA is 1,650, dividing this figure by the Dow Divisor of 0.132129493 would provide a level of 12,487.75 for the index.


Most corporate actions such as stock splits and spinoffs have served to push the value of the Dow Divisor lower. The fact that the Divisor is now well below one means that the divisor actually functions as a multiplier!

RELATED TERMS
  1. Stock Split

    A corporate action in which a company divides its existing shares ...
  2. Blue Chip Indicator

    A formal gauge or measure of the performance of a selected group ...
  3. Dow Jones Utility Average - DJUA

    The Dow Jones Utility Average is a price-weighted average of ...
  4. Dow Jones Transportation Average ...

    A price-weighted average of 20 transportation stocks traded in ...
  5. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
  6. Dow Jones Industrial Average - ...

    The Dow Jones Industrial Average is a price-weighted average ...
Related Articles
  1. Investing Basics

    An Introduction To Stock Market Indexes

    Investopedia explains the five most talked about indexes and what makes them all different.
  2. Bonds & Fixed Income

    How Now, Dow? What Moves The DJIA?

    Find out how this index tracks market movements and where it falls short.
  3. Investing Basics

    Barking Up The Dogs Of The Dow Tree

    One well-known and successful strategy for cashing in on dividends is the Dogs of the Dow. Here's what you need to know about them.
  4. Personal Finance

    How Stock Market Indexes Changed Investing

    Find out how the first market averages were calculated and what they mean for investors today.
  5. Options & Futures

    Why The Dow Matters

    Although the DJIA only includes 30 stocks, it can tell you a lot about the market as a whole.
  6. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  7. Term

    Understanding Market Price and Its Changes

    An asset’s or service’s market price is the current price at which it can be bought and sold.
  8. Active Trading

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  9. Economics

    The History of Stock Exchanges

    Stock exchanges began with countries who sailed east in the 1600s, braving pirates and bad weather to find goods they could trade back home.
  10. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
RELATED FAQS
  1. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  2. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  3. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  4. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  5. Is there a difference between financial spread betting and arbitrage? (AAPL, NFLX)

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center