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 more 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, I would add Wellpoint and Dow Chemical. There are several weaknesses regarding the DJIA. It remains as 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 the present, when there are large disparities in market cap between companies listed on the
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This note was uploaded on 03/22/2009 for the course UGBA 08403 taught by Professor Robinson during the Spring '09 term at University of California, Berkeley.

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

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