How does this have a downward bias?

The downward bias of price weighted index happens with stock split. After the stock split, the price will decrease. If we do not adjust the divisor, the index will decrease, thus a downward bias.

it says that the Price weighted Index has a downward bias While doing our calcualtion, we do adjust the price and the denominator ,so where is a bias??

If you decrease the price in the numerator and increase the denominator, the price will decrease.

varundarji Wrote: ------------------------------------------------------- > it says that the Price weighted Index has a > downward bias > While doing our calcualtion, we do adjust the > price and the denominator ,so where is a bias?? stock split, price goes down. end of discussion.

while making an adjustment u dont increase the denominatorâ€¦what u actually do is adjust the denominator so that the index remains at the same value

It has a downward basis because the more successful companies, with growing stock prices, are more likely to split their stock. This reduces their influence on the index (due to their lower price). Everyone agree?