Unweighted v Price Weighted indices

[Henry Smacks]

Hi,

Is there a difference between an unweighted and price weighted index? They both appear to be the average of the price movements?
Also in September 2019 Q3i it states that Dow Jones Industrial Average index is unweighted while the notes state it is price weighted.

Thanks,
Henry

 

[Joe Hook]

Hi Henry,

An unweighted index would take the return on each constituent and average them to provide a daily return. A price-weighted index would add together the prices of all the constituents and divide by the prices one day previous to get a daily return. The latter is price-weighted in a sense that greater weight is given to the assets with higher prices.

The DJIA was previously in the Core Reading as unweighted (and this is the Core Reading that would have been prevailing for September 2019) but this has recently been corrected to price-weighted.

Hope this helps
Joe

 

[Henry Smacks]

Thanks Joe