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Strategies & Market Trends : Stock Attack -- A Complete Analysis
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To: Electric who wrote (13225)7/27/1998 5:17:00 PM
From: Chris  Read Replies (1) of 42787
 
more stuff on index calculations:
received via priv. msg:

price KO) + (price GM) + (price HWP) + .... + (price GE)
___________________________________________________________
Dow Divisor

Now when a stock splits, the overall divisor is adjusted so that their is no net change. The
points I made about the problems of price weighting and decreased volatility are still valid.

In fact, the function I suggested to you, where each stock has its own divisor, would fix the
volatility problem but not the unequal weighting. It has been proposed but rejected as
excessively complicated. Yeah right, like a P-II couldn't calculate in less than a
microsecond.

The SPX is calculated like this:

{[(price MSFT) * (# of MSFT shares)] + .... + [(price GE)*(# of GE)]}
_____________________________________________________________________
SPX divisor

This never has to be split adjusted and only is adjusted when the stock membership
changes.

I glad you enjoy these posts and they help me to get these concepts clearer in my mind.
Kevin from TSO is the king of this stuff as indexes are his job. He has caught the NDX,
NASDAQ, and AMEX a couple of times when they made a (or failed to make) a divisor
adjustment correctly. He could have made a quick bundle on indexes options if he lacked
ethics. He immediately informed the exchanges before damage was bad.
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