CFA Practice Question

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.
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