What is the index divisor?

The index divisor represents the denominator in the sometimes technical or complex stock formula. Many national indexes use divisors to calculate the total value reported for a group of shares. For example, the industrial average Dow Jones (DJIA) in the United States takes over the value of every company in Dow and divides it by the divisor of the DJIA index, which is a constantly changing divisor. The divisor changes for different purposes; Small modifications sometimes allow stakeholders to have comparable information for the shares index over time. This divisor does not have to have a large amount of mathematical theory. The purpose of the denominator change in this calculation allows individuals to re -evaluate the entire index by issuing more shares in the index. If this happens, any additional stock offer is a title such as a secondary or third offer. Companies offer a more shared period after the initial public supply due to increased demand - most likely - a higher capital for business. To be an index weighted with the price nAbsolutely similar data in the trend, the index divisor must change as well.

While additional stock offers change the divisor of the index in the price index-and most other shares indexes are not related to shares. For example, dividends published from a company that has shares in the index usually does not change the divisor. In addition, shares dividend or shares divide do not have to change the divisors used to calculate the valuable index. These changes do not affect the price -weighted index because new investors do not add to the mix. Only those investors who already own the company's shares are influenced, causing changes are much less important than the next stock offer.

Other cases of changes in shares divisor are possible, with a small mathematical reason for changes. For example, the index divisor may change when the company makes changes or modifications to the shares of employees. This eventually releases more shares on the marketAnd it changes the value of the entire index in which the company's shares are located. In addition, they can also change or change the shares index. If this happens, the reviewers of the shares index can change the index divisors to recalculate the total index.