How Stock Splits Change an Index Divisor
Summary
Hollow Point Trading shares a video explaining how a stock split affects a price-weighted index. Using a hypothetical two-stock index priced at $100 and $50 with a divisor of two, it shows why the divisor must adjust when a 2-for-1 split cuts one stock’s price to $50, preventing a misleading drop in the index.
https://youtu.be/DGTpd4mKnRk
Why an index divisor changes after a stock split #StockSplit #Index...
A stock split should not create a fake market loss in a price weighted index. Consider a hypothetical two stock index. The prices are one hundred dollars and fifty dollars. With a divisor of two, the index level is seventy five. The first stock has a two for one split, cutting its price to fifty dollars with no economic price move. The new price...
