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Lesson 15. The Ticker Tape, Stock Indice... > The Dow Jones Average - Pg. 95

The Ticker Tape, Stock Indices, and Other Media 95 You could, however, give the test to a sample of five students per grade. This would reduce the amount of data to 30 tests (5 samples × 6 grades = 30). You could even add the different grade- level scores together to get an overall score. By comparing the results with the same figure derived from the before-test data, you as a principal could get an overall idea of how the teaching methods had affected the quality of instruction. The advantage of this method is that only one overall score is needed and the disruption to your school is minimal. In much the same way, indices, using just one figure or score, give a broad overview of how current events are affecting the market. An index adds up the prices of a predetermined number of stocks that are considered to best represent their markets. The sum is then averaged to provide an overall figure that is intended to represent the market as a whole. Using the same elementary school example, by increasing the amount of data--namely, increasing the number of students sampled--would also provide a more accurate average. This is because by expanding the sample, the average is less affected by the changes of individual stocks. The trick, then, is to determine how much information can be handled effectively without decreasing accuracy. Indices can measure any type of market, and anyone can create an index. Indices measure ex- changes such as the New York Stock Exchange as well as industries such as utilities. Indices can also measure collective groups, such as new companies with little or substantial capitalization. The trick is to pick the stocks that best represent the market being measured. In addition, to further ensure that they remain representative, indices must be capable of incorporating adjustments based on the effects of progress and changes. For that reason, indices are active, constantly being moni- tored for any necessary formulaic adjustments, including the replacement of the representative stocks. Tip Several of these indices have achieved phenomenal popularity. The Dow is used almost