Replicating the Dow Jones Industrial Average

The Dow Jones Industrial Average has historically been the most quoted stock index in the United States. It has several unique features. It uses price weights, it ignores cash dividend payments, and it also treats stock dividends, rights issues, and other corporate actions inconsistently. We show th...

Full description

Saved in:
Bibliographic Details
Published inNBER Working Paper Series
Main Authors Lin, Jacky, Selden, Genevieve C, Shoven, John B, Sialm, Clemens
Format Paper
LanguageEnglish
Published Cambridge National Bureau of Economic Research, Inc 01.03.2021
Subjects
Dividend distributions
Dividends
Dow Jones averages
Economic theory
Rates of return
Securities markets
Stock exchanges
Online AccessGet full text

Cover

More Information
Summary:The Dow Jones Industrial Average has historically been the most quoted stock index in the United States. It has several unique features. It uses price weights, it ignores cash dividend payments, and it also treats stock dividends, rights issues, and other corporate actions inconsistently. We show that price indices which use alternative weighting methods and more systematic inclusion criteria perform similarly to the Dow. However, ignoring cash and stock dividends underestimates the long-run returns earned by stock market investors dramatically. If the DJIA had consistently adjusted for dividends and other corporate actions since 1928, the index would have closed at 1,113,047 instead of 28,538 points at the end of 2019.
ISSN:0898-2937
DOI:10.3386/w28528