Performance of Dow Jones Industrial Average: micro and ...

Performance of Dow Jones Industrial

Average: micro and macro-level analysis

Luis Palacios

Rabih Moussawi

Denys Glushkov

Bob Zarazowski

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Motivation

Dow tends to hover around 1,000 and 10,000 thresholds for some

time. Is it psychological anchoring of investors or there are

fundamental explanations behind it?

DJIA

10,000

1,000

100

Overlaying 1966-1982 DJIA performance

with 1997-2010

16,000

1,200

14,000

1,000

12,000

800

10,000

8,000

600

6,000

400

4,000

200

2,000

0

0

1997_2010

1962-1982

Micro approach: DJ constituents

Pretty impressive coverage in terms of fraction of the entire market cap, ~20%

Dow Jones Coverage as % of Total Equity Market Capitalization

35%

30%

25%

20%

15%

10%

5%

0%

1960

1961

1962

1963

1964

1965

1967

1968

1969

1970

1971

1972

1974

1975

1976

1977

1978

1979

1981

1982

1983

1984

1985

1986

1988

1989

1990

1991

1992

1993

1995

1996

1997

1998

1999

2000

2002

2003

2004

2005

2006

2007

2009

?

DJ Coverage % of Market Cap

Performance of DOW vs total stock market

How good was DJ composition reflective of the overall US economy over time?

DJIA returned less than the overall market, especially during 1977-1982

period.

$100 Buy and Hold DJIA vs Total Equity Market

based on real returns incl. dividends (adjusted for inflation)

140

120

100

80

60

40

20

0

196601

196606

196611

196704

196709

196802

196807

196812

196905

196910

197003

197008

197101

197106

197111

197204

197209

197302

197307

197312

197405

197410

197503

197508

197601

197606

197611

197704

197709

197802

197807

197812

197905

197910

198003

198008

198101

198106

198111

198204

198209

?

DJIA with Dividends

Total Market Returns incl Dividends

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