| Financial indexes are price weighted indicators calculated by dividing the sum of the prices of component stocks by a number called the index divisor. |
For example, to determine the Dow Jones Industrial Average, the sum of the prices of all 30 stocks is divided by a divisor, which is published by the Chicago Board of Trade's. Originally, the DJIA was a simple arithmetic average of the prices of the component but with the passage of time this proved inadequate. Index divisors are typically adjusted over time to offset the effect of structural changes on the index and at the same time to preserve the validity of the index as a benchmark for the overall economy.
