Average – Financial Terms

A stock market average is a mathematical way of showing the price changes in representative stocks. It is designed to reflect the general movement of the broad market or a certain segment of the market. A true average adds the prices of the stocks it covers and divides that amount by the number of stocks.

However, many averages are weighted, which means they count stocks with the highest prices or largest market capitalizations more heavily than they do others. That’s to account for differences in their impact on the markets and on the economy in general. The most widely followed average is the price-weighted Dow Jones Industrial Average (DJIA), which measures the performance of 30 industrial stocks.