UGBA Paper 3 - Michael Chang 19379082/Section 101 The Dow...

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Michael Chang 19379082/Section 101 The Dow Jones Industrial Average (DJIA) is often regarded as the definitive benchmark of the overall health of the US stock market as it the oldest and most well regarded stock index. The DJIA is now a price-weighted average of stocks that has evolved from industrial stocks to financial and energy stocks that play a larger role in the American economy in terms of market capitalization in order to diversify the stocks in the index. While the DJIA has generally adapted to the times, it is no longer representative of the overall health of the U.S. stock market. If I were to recommend two new firms that would help to expand the diversity of the DJIA and to address its shortcomings, I would add the companies of Wellpoint and Dow Chemical. There are several weaknesses regarding the DJIA. It remains a price-weighted index (based only on share price), a vestigial decision from the early 1900s, when all the industrial companies listed were fairly the same size. A market cap weighted index makes more sense in
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