Price-weighted index divisor and stock split

In its simplest form, a price weighted average is just the average price of a group of stocks. It's considered "price weighted" because the same percent increase in a higher priced stock influences the average more than that of a lower priced stock.

How to calculate price-weighted indexes with stock splits! DESPERATE FOR HELP? | Yahoo Answers

Computing the price weighted average is complicated by stock splits. To compensate for splits, the formula's divisor changes, even if the number of stocks in the average has not.

Reference each stock's closing price for the same day. As an example, say you wanted to compute the price weighted average of just two stocks: Divide by the divisor.

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The first time you compute the price weighted average, the divisor is simply the number of stocks, but this value may change with stock splits.

Divide the closing price of the split stock on the day immediately prior to the split by the split number.

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Add this new price to the other stock prices. Divide this value by the price weighted average, computed on the day immediately prior to the stock split.

Use this new divisor in the price weighted calculation until another one of the indexed stocks split, at which time you need to repeat the calculation to derive an updated divisor. How to Calculate Price Weighted Average for Stocks by C.

Price Weighted Average Step 1 Reference each stock's closing price for the same day. Adjusting the Divisor for Stock Splits Step 1 Divide the closing price of the split stock on the day immediately prior to the split by the split number.

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References 2 Western Washington University: Security Market Indicator Series SMIS Metropolitan State College of Denver: Financial Markets -- Price Weighted Average. How to Calculate Relative Strength Between Stock and Index. How to Calculate Share Index How to Figure the Weighted Average of Common Stock. Copyright Leaf Group Ltd.