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. Today's High

    A security's intraday high trading price. Today's high is the ...
  3. Index

    A statistical measure of change in an economy or a securities ...
  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 Articles
  1. Investing

    What is the Dow Jones Industrial Average (DJIA) all-time high?

    Inching ever higher, the Dow Jones recorded new highs in September 2014. Since the index was first calculated in 1896, it has grown by 3.5 percent annually.
  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. Fundamental Analysis

    What are the components of shareholders' equity?

    Understanding company valuation figures, such as shareholders' equity, can be a powerful tool in assessing the financial strength of a business.
  4. Bonds & Fixed Income

    What is the difference between the yield of stock and the yield of a bond?

    Explore and understand the various meanings of the investment term "yield" as it is applied to equity investments and bond investments.
  5. Bonds & Fixed Income

    Why are bond yields calculated in terms of basis points?

    Find out why financial analysts and publications track and quote bond yields in basis points, or bps, rather than simply stating percentages.
  6. Investing Basics

    What is the Stock Market?

    A stock market is where shares in corporations are issued and traded. Stock markets are key components of a free market economy.
  7. Investing

    Commercial Paper

    Commercial paper is a short-term debt security issued by financial companies and large corporations. The corporation promises the buyer a return, or profit, for making the loan. The return is ...
  8. Investing Basics

    What is the difference between a company's outstanding shares and its float?

    Understanding share counts, including outstanding shares relative to float, is an integral part of determining whether or not to invest in a particular company.
  9. Investing Basics

    What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various terms is at the foundation.
  10. Options & Futures

    What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission, or SEC, including the uptick rule.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center