CFA Practice Question
Which of the following statements regarding biases in an index is TRUE?
A. The DJIA suffers from greater weight assigned to large-cap stocks.
B. The Nikkei-Dow suffers from a downward bias due to stock splits.
C. The Value Line Index is biased upward compared with an equally weighted index.
Explanation: Nikkei Dow is a price-weighted index and has a downward bias due to stock splits.
User Contributed Comments 6
| User | Comment |
|---|---|
| jayjunk | A. is true... the Dow indeed has an over-representation of large cap stocks. What exactly "suffers" is supposed to mean here needs to be clarified. |
| chbourke | DJIA is weight by the price, because it is one stock of each equity. All large cap are in DJIA but they are weighted by there price. |
| patsy | jayjunk: DJ weighted by price not cap. Otherway around for for S&P |
| StanleyMo | anything with DJ we knew it is price weight, EX, we have 50$ for the stock A, when stock splits happen, it become 25, and causing downward bias ( the stock less influential ) |
| homermatrix | What is Value line index? |
| ashish100 | Value line index is an example of an equally weighted index. |