Stock market indicators, Financial Management

Assignment Help:

Stock Market indicators:

Stock indices can be organized by weighting the sample of stocks. The stock indicators can be of four types: price-weighted average, volume-weighted average, unweighted or equal weighted price index and free-float market capitalization.

Price-Weighted Average
Price-weighted average is the arithmetic average of current prices. The Dow Jones Industrial Average (DJIA) is the most popular price-weighted average. DJIA is unique in the price weighted series rather than market capitalization weighted series. The component weightings are affected only by changes in the stocks' prices, in contrast with other indexes which give weightings that are affected by both price changes and changes in the number of shares outstanding. When the DJIA was initially created, its values were calculated by simply adding up the component stocks' prices and dividing by the number of components. The rise in stock prices in terms of percentage will have uneven impact on calculation of index giving more weightage to higher price stocks. Such that, a $1 appreciation in the price of a small stock of $10 and $1 appreciation of a stock of $100 will have same implication on the index movement even though their percentage of appreciation differ. Moreover, the market capitalization of companies has no influential role to play in calculation of the index.

Therefore, the DJIA is not the true indicator of US industrial economy and the stock market as a whole. Later, the practice of adjusting the divisor was initiated to smooth out the effects of stock splits and other corporate actions.

Two kinds of averages are used in constructing share price indices - arithmetic mean and the geometric mean. Between the two averages, the arithmetic mean is more widely used. However, before we evaluate these methods, it must be emphasized that the indices based on averages are not the same as the general averages.

 


Related Discussions:- Stock market indicators

Explain life insurance in detail, Question 1 Insurance is protection again...

Question 1 Insurance is protection against possible financial loss. Explain life insurance in detail Question 2 Mutual funds are a composite of stocks, bonds, and securities,

How much more return is appropriate for common stock, Given that risk-avers...

Given that risk-averse investors demand more return for taking on more risk when they invest, how much more return is appropriate for, say, a share of common stock, than is appropr

Show financial management process, Q. Show Financial Management Process? ...

Q. Show Financial Management Process? The financial management process begins with the financial planning and decisions. While implementing these decisions, the firm has to acq

Determine current cost of equity, Your task is to determine CDW's current c...

Your task is to determine CDW's current cost of equity. Since the company is not yet publicly traded , you need to estimate its cost of equity from a set of comparable companies. U

Calculate the amplitude of the dc component, Calculate the amplitude of the...

Calculate the amplitude of the DC component: A periodic voltage consists of sinusoidal pulses having an amplitude of 150 V (SEE DIAGRAM BELOW). Use Fourier Series Expansion to

Factors influencing capital structure, FACTORS INFLUENCING CAPITAL STRUCTUR...

FACTORS INFLUENCING CAPITAL STRUCTURE/DETERMINANTS OF THE CAPITAL STRUCTURE 1. Financial leverage (or) Trading on equity it is the make use of long term fixed interest bea

Explain the market analysis of events, Question 1 Describe the Cost Vol...

Question 1 Describe the Cost Volume Profit analysis. Explain its features, objectives and elements(CVP analysis) Question 2 Write in detail about the classification of

Changes in exchange rates, Q. Changes in exchange rates? The law of one...

Q. Changes in exchange rates? The law of one price proposed that identical goods selling in different countries should sell at the same price and that exchange rates relate the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd