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Djia presentation rev7


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Djia presentation rev7

  1. 1. Dow Jones Industrial Average2011 McGill University<br />
  2. 2. Igor Lepadatu<br />Jean-Bernard Ng Man Sun<br />VladyslavPronin<br />Brian Ruse<br />Class presentation prepared by:<br />
  3. 3. The Goal of Presentation:<br />To familiarize the public with the underlying concept of DJIA<br />To explain how DJIA is applied and used<br />The purpose and importance of DJIA<br />To describe the historical background of DJIA<br />To discuss the guidelines for calculation and formulas <br />To bring the strengths and weaknesses<br />
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  5. 5. 30<br />
  6. 6. What is Dow Jones Industrial Average ?<br /><ul><li>Is a stock market index gauging the performance of the industrial sector
  7. 7. The average value of large industrial stocks within the American economy
  8. 8. Includes 30 companies and averaged their values by following a specific formula</li></ul>Big companies like General Motors, Goodyear, IBM and Exxon<br />Tell how companies traded on the stock market<br />
  9. 9. What does the average tell ?<br /><ul><li>The general health of stock prices as a whole
  10. 10. Show the tendencies in the market
  11. 11. If the economy is "doing well,“ the prices of stocks as a group tend to rise.
  12. 12. If it is “doing poorly" prices as a group tend to fall.</li></li></ul><li>What does DJIA influence?<br />corporate and economic reports<br />domestic and foreign political events <br />wars and terrorism acts <br />natural disasters that could potentially lead to economic harm. <br />
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  14. 14. 1896<br />
  15. 15. HISTORICAL BACKGROUND<br /><ul><li>Founded by Charles Dow on May 26, 1896.
  16. 16. Represented the dollar average of 12 stocks from leading American industries</li></ul>General Electric <br />American Cotton Oil Company<br />American Sugar Company<br />American Tobacco Company<br />Chicago Gas Company<br />Distilling & Cattle Feeding Company<br />Laced Gas Company<br />National Lead Company<br />North American Company<br />Tennessee Coal, Iron and Railroad<br />U.S. Leather Company<br />United States Rubber Company<br />
  17. 17. HISTORICAL BACKGROUND<br />History of the DJIA from 1900 to present<br />
  18. 18. Historical background<br />Late 1890s, the index started at 40.94 pts <br />1910’s: World War 1: very slow rise<br />1920’s: prosperous time. Increased to 30 stocks in 1928. Crash 0f 1929 and the Great Depression lowered gains.<br />1930-1940: WW2 (loss of about 48%) but Post-war peace and reconstruction creates rapid rise <br />1960’s: Vietnam War and Civil Rights Movement: slow climb<br />1970’s: reached 1000 pts for the first time in 1972<br />1980’s: very rapid rise in average. Went up by 228% and finished at 2753 points<br />Black Monday: Oct 19th 1987: average fell by 22.61% in one day. Blamed on program trading.<br />
  19. 19. 315%<br />
  20. 20. HISTORICAL BACKGROUND<br /><ul><li>1990’s: boom - rapid development in technology:
  21. 21. Passed 5000 pts on Nov. 21, 1995 for the 1st time
  22. 22. March 29, 1999, closed above 10,000 marks: celebration on the trading floor made cover of many publications like NY Times.
  23. 23. Total gain for the 90’s: 315% from 2753 to 11497
  24. 24. Events of September 11, 2001: when Market reopened on Sep. 17th, the DJIA lost 684.81 pts (7.1%). Regained the lost points later in the year
  25. 25. 2006 to 2007: rapid rise
  26. 26. End of 2008 - begin. 2009: financial crisis + record price of oil: rapid loss – reached 12-year low on Mar 9, 2009 at 6547.05 pts, losing 20% in 6 weeks
  27. 27. Since then steady upward climb.
  28. 28. May 6th, 2010: Flash Crash – lost 998.50 points within a day. Recovered immediately but largest intra-day fall ever. Blamed on technical glitch
  29. 29. May 27th: 12,441.58 pts</li></li></ul><li>
  30. 30. DIVISOR<br />
  31. 31. Calculation<br />To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a Divisor. <br />The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. <br />Earlier, the initial divisor was composed of the original number of component companies. <br />The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). <br />
  32. 32. Calculation formulas<br />Main formula:<br />Events like stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow Divisor is updated so that the quotations right before and after the event coincide:<br />
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  34. 34. DJIA Strength & Weaknesses<br />It is undeniable that DJIA is most commonly used & referred to index. Mainly thanks to its focus on biggest market players. It is also comfortable to calculate and analyze. <br />Nevertheless it has some major downsides to it when it comes to establishing accurate current market conditions.<br />
  36. 36. DJIA Criticism<br /><ul><li>Price-weighted nature of the average (more power to influence belongs to higher-priced stocks
  37. 37. Inclusion of only 30 stocks can not accurately reflect overall market performance</li></li></ul><li>DJIA Criticism [cont’d]<br /><ul><li>Desynchronized opening of components produce inaccurate reflection of the true opening price in each particular day.
  38. 38. The opening price can not be used to analyze current condition of the market.</li></li></ul><li>Djia relevance today<br />Still the most important indicator for media. Irreplaceable for description of current state of markets. <br />Daily Dow index has lost much of its faith following by serious investors and long-term planners.<br />But it is still undiminished in importance to traders and the investment community.<br />
  39. 39. Dow Jones Industrial Average<br />FEEL FREE TO ASK QUESTIONS…<br />
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  41. 41. What is DJIA?<br />DJIA show the tendencies in the American market especially during snow storming<br />DJIA is based on the activity on the worldwide mortgage market based on reports of 30 biggest American companies<br />Is influenced by the health state of important worldwide politicians and gangsters during lunch time<br />Is important tool to measure the deep in the Marianas Trench in the Pacific ocean<br /> The average value of 30 large industrial stocks within the American economy<br />
  42. 42. How many component stock prices are used to calculate DJIA?<br />500<br />1000<br />100<br />30<br />50<br />
  43. 43. When was the DJIA created?<br />1845<br />1896<br />1922<br />1956<br />1972<br />
  44. 44. By how much did the DJIA increasein the 1990’s?<br />55%<br />315%<br />122%<br />30%<br />1896%<br />
  45. 45. The current value of the Dow divisor is 0.132129493. This means that every $1 change in the price of a component stock results in a change in the Dow of how many points?<br />6.82<br />8.41<br />7.57<br />9.43<br />3.14 <br />