Dictionary > Finance > P > Price Weighted Index

# Finance Dictionary - P Terms

# Price Weighted Index

In a price-weighted index the basic approach to sum the prices of the component securities used in the index and divide this sum by the number of components; in other worlds, to compute a simple arithmetic average. The Dow-Jones Industrial Average (DJIA) is the most familiar index of this type. To allow for the impact of stock splits and stock dividends, which could destroy the consistency and comparability of price-weighted index data over time, an adjustment of either the reported price data or the divisor itself is required. .