Replicating the Dow Jones Industrial Average

33 Pages Posted: 25 Feb 2021

See all articles by Jacky Lin

Jacky Lin

Stanford Institute for Economic Policy Research

Genevieve Selden

Stanford University

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 24, 2021

Abstract

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.

Keywords: Index Construction, Dividends, Stock Dividends, Splits

JEL Classification: G10; G11

Suggested Citation

Lin, Jacky and Selden, Genevieve and Shoven, John B. and Sialm, Clemens, Replicating the Dow Jones Industrial Average (February 24, 2021). Available at SSRN: https://ssrn.com/abstract=3792413 or http://dx.doi.org/10.2139/ssrn.3792413

Jacky Lin

Stanford Institute for Economic Policy Research ( email )

366 Galvez St
Stanford, CA 94305
United States

Genevieve Selden

Stanford University ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

John B. Shoven

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-326-5377 (Phone)
650-328-4163 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Clemens Sialm (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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