Theoretical Dow Jones Index

AAA

DEFINITION of 'Theoretical Dow Jones Index'

A method of calculating a Dow Jones index (most often the DJIA) that assumes all index components hit their high or low at the same time during the day.

INVESTOPEDIA EXPLAINS 'Theoretical Dow Jones Index'

In other words, the "theoretical Dow" uses the daily highs for all 30 Dow components to calculate the index high, and the lows to calculate the index low. In January of 1992, Dow Jones started using the "actual" method, which calculates the index at 10-second intervals throughout the day. Before this point, the theoretical calculation was the only way to compute the high and low of the index.

This method assumes that all stocks hit their high or low at the same time. Because this rarely happens, the theoretical high will almost always be higher than the actual, and the theoretical low will almost always be lower than the actual.

RELATED TERMS
  1. Blue Chip Indicator

    A formal gauge or measure of the performance of a selected group ...
  2. Index

    A statistical measure of change in an economy or a securities ...
  3. Today's High

    A security's intraday high trading price. Today's high is the ...
  4. Dow Jones Industrial Average - ...

    The Dow Jones Industrial Average is a price-weighted average ...
  5. Today's Low

    A security's intraday low trading price. Today's low is the lowest ...
  6. Dow Jones Transportation Average ...

    A price-weighted average of 20 transportation stocks traded in ...
RELATED FAQS
  1. What is the Dow Jones Industrial Average (DJIA) all-time high?

    The Dow Jones Industrial Average (DJIA) is inching up and recording new highs during the month of September 2014. On Thursday, ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    How Now, Dow? What Moves The DJIA?

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

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  3. Investing Basics

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  4. Economics

    What is the Breakeven Point?

    In general, when gains or revenue earned equals the money spent to earn the gains or revenue, you’ve hit the breakeven point.
  5. Stock Analysis

    What is the Price-to-Sales Ratio?

    The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues.
  6. Mutual Funds & ETFs

    Which ETF is the Best Bet: VTI or IWV?

    A look at two quality ETFs that offer diversification, low expense ratios, and exposure to the total market.
  7. Investing Basics

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  8. Investing Basics

    What is a Mid-Cap?

    Mid-cap companies are those with a market capitalization between two and $10 billion.
  9. Fundamental Analysis

    What's a Drawdown?

    A drawdown is usually expressed as a percentage change between the peak price and the low price (trough) of an investment.
  10. Investing Basics

    What is Securitization?

    Securitization is the process of converting an asset, or group of assets, into a marketable security. Often times, the securitized assets are divided into different layers, or tranches, tailored ...

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center