The Dow Jones Industrial Average, or DJIA, is a stock index comprised of 30 different companies traded on the Nasdaq and the New York Stock Exchange, or NYSE. The DJIA covers a number of different sectors. The companies included range from Apple to Exxon Mobil to Goldman Sachs. The DJIA is a price-weighted average index, which allows it to adjust to stock splits and other corporate actions. It is calculated by taking the sum of the individual components and dividing that amount by a divisor. The divisor changes as there are stock splits, dividends paid or corporate spinoffs to allow for a consistent index.

The DJIA was first calculated in May of 1896 by Charles Dow and Edward Jones. It is the second oldest stock index, after the Dow Jones Transportation Average, also invented by Dow and Jones. The DJIA was calculated by hand hourly for a number of years. There was a delay of about seven minutes between the close of the NYSE until the final number came out over the wires. Eventually, the advent of computers enabled a constant minute-by-minute calculation of the average while the market is trading.

The largest single day percentage drop in the DJIA was on Oct. 19, 1987 when the index dropped over 22%. The second largest decline occurred on Oct. 28, 1929 when it dropped around 12%. Not surprisingly, these drops coincided with times of financial instability in the United States. The stock exchanges and regulators have since implemented circuit breakers to halt trading in the case of large downward movements. These circuit breakers allow the market to take a break during times of heightened volatility.

  1. What's the difference between the Dow Jones Industrial Average and the S&P 500?

    The DJIA is a price-weighted average of 30 stocks whereas the S&P 500 is a market value-weighted index of 500 stocks. Read Answer >>
  2. What is the difference between the Dow and the Nasdaq?

    The Dow refers to the Dow Jones Industrial Average (DJIA) index, while the Nasdaq refers to the Nasdaq Composite Index Read Answer >>
  3. When did the Dow Jones Industrial Average (DJIA) begin?

    Discover how the Dow Jones Industrial Average, first published in 1896, was created as a way to inform investors of the overall ... Read Answer >>
  4. When was the Dow Jones Industrial Average first calculated?

    Charles Henry Dow was born on a farm in Connecticut on November 6, 1851. Farming didn't suit Charles Dow, however, so he ... Read Answer >>
  5. How is the Dow Jones Industrial Average used in the Dow theory?

    Discover how the Dow Jones Industrial Average is used in the Dow Theory, which is used by traders to figure out the trend ... Read Answer >>
  6. Who were the original Dow Jones Industrial Average (DJIA) companies?

    Discover how the 12 original companies in the Dow Jones Industrial Average reflected broad market trends and how the present ... Read Answer >>
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