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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Bonnie Bear who wrote (12713)	1/6/1998 8:03:00 PM
From: tekgk	Respond to of 94695

Bonnie, The site below is slow but I think that you'll enjoy it, especially the part about how indexes are valued. As I recall you have complained about it in previous posts. home.clara.net Begin Quote The Dow Jones industrial average, "the Dow" is the measure by which most people are familiar with the health of the stock market. News media commonly report that "the Dow Jones is up 11 this hour at 3850.19" or something like that. The industrial average is made up of 30 stocks intended to be representative of American industry. The average is price weighted, making for price changes in one component to be equal to an identical price change in another component. For example, if Exxon moves up a point from 60 to 61, it will have the same effect on the average as if Merck goes from 35 to 36. When the present Dow 30 stock average was started back in 1928 the divisor was 16.67. If all Dow components advanced by a combined 16.67, then the index would advance by 16.67 divided by 16.67, or 1 full point. By the end of 1994 thanks to modifications to the components to account for, stock splits, takeovers, spin-offs, etc. the Dow divisor had declined to stand at 0.37153418. Of course once it broke 1.00 it effectively became a multiplier. So if the Dow components advance by a collective 10.00 points, the Dow average will advance by 10 divided by 0.37153418 or 26.92 points. The component stocks of the Dow average trade with a bid asked spread. Depending on circumstances and market volatility, the spreads may be large or small, but if, for example, the spreads were to collectively equal plus 5 points on the opening, then the average would advance 13.45 points. On days where a buy program is executed at the close, there is an additional upward effect on the average since buys will be made at the offered price. Similarly, if a sell program is executed at the close a additional downward effect will be present. If programs are executed in times of high volatility where the collective spread was wide, eg. 10 points, then the "divisor effect" can be large. The multiplier effect of the Dow divisor can have a masking effect upon the real health of the underlying market. End Quote

To: Bonnie Bear who wrote (12713)	1/7/1998 1:22:00 AM
From: kas1	Read Replies (1) \| Respond to of 94695

that's not really something testable by corr, is it? at least not directly. could be a really crappy probit test. the other possibility is to calculate a variable that equals distance in days from the fifth of the month, similarly two more variables for dividend payment and money market, and do a multiple regress. if someone has raw data i can do it sometime (no promises on how soon).