Dow Divisor

AAA

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.

INVESTOPEDIA EXPLAINS '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. Stock Dividend

    A dividend payment made in the form of additional shares, rather ...
  5. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
  6. Spinoff

    The creation of an independent company through the sale or distribution ...
RELATED FAQS
  1. Why does the efficient market hypothesis state that technical analysis is bunk?

    The efficient market hypothesis (EMH) suggests that markets are informationally efficient. This means that historical prices ... Read Full Answer >>
  2. What are the most effective ways to reduce moral hazard?

    There are a number of ways to reduce moral hazard, including the offering of incentives, policies to prevent immoral behavior ... Read Full Answer >>
  3. How does the risk of investing in the electronics sector compare to the broader market?

    The risk of investing in the electronics sector closely approximates the risk of investing in the broader market. The electronics ... Read Full Answer >>
  4. How do markets account for systematic risk?

    Systematic risks provide markets with an unpleasant quandary. Economists, policy makers, directors, fund managers and investors ... Read Full Answer >>
  5. What stage of the economic cycle is usually the best for an investor to enter the ...

    The best time during the economic cycle for an investor to enter the electronics sector is when he has confidently identified ... Read Full Answer >>
  6. How do S&P 500 futures work?

    S&P 500 futures are a type of capital asset contract that provides a buyer the right to a predetermined selection of ... Read Full Answer >>
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. Investing Basics

    What is a "Coupon"?

    In the financial world, “coupon” represents the interest rate on a bond.
  7. Investing Basics

    What is a Cyclical Stock?

    A cyclical stock is an equity security whose price is affected by ups and downs in the overall economy.
  8. Investing Basics

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  9. Investing Basics

    Explaining the Coupon Rate

    Coupon rate is the stated interest rate on a fixed income security.
  10. Investing Basics

    What are Ordinary Shares?

    Ordinary shares are any type of shares that are not preferred and don’t pay any type of predetermined dividend amount.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center