How to calculate PE ratios for indices such as DJIA?

Question

I want to record Dow Jones Industrial Average's PE. Yahoo Finance gives N/A [1]:

>>> import y_finance
>>> print y_finance.get_price_earnings_ratio('^DJI')
N/A

So:

1. How to calculate the PE for indices such as DJI?
2. How do you weight each PE of a firm by their assets, equity, market cap or s/thing else?
3. If you do not calculate them, how do you get them? Free?

[1] http://www.goldb.org/ystockquote.html

Answer 1

The official source for the Dow Jones P/E is Dow Jones. Unfortunately, the P/E is behind a pay-wall and not included in the free registration.

The easiest (but only approximate) solution is to track against an equivalent ETF. Here's a list of popular indexes with an equivalent ETF.

• DIAMDONS Trust I (ticker: DIA) tracks DJIA
• SPDRs (ticker: SPY) tracks S&P 500
• NASDAQ 100 Trust (ticker: QQQQ) tracks NASDAQ 100
• iShares Russell 2000 (ticker: IWM) tracks Russell 2000
• MidCap SPDRs (ticker: MDY) tracks S&P MidCap 400
• Total Stock Market VIPERs (ticker: VTI) tracks Wilshire 5000

Source

Answer 2

You could look up the P/E of an equivalent ETF, or break the ETF into components and look those up. Each index has its own methodology, usually weighted by market cap.

See here: http://www.amex.com/etf/prodInf/EtAllhold.jsp?Product_Symbol=DIA

Answer 3

One thing to keep in mind when calculating P/E on an index is that the E (earnings) can be very close to zero. For example, if you had a stock trading at $100 and the earnings per share was $.01, this would result in a P/E of 10,000, which would dominate the P/E you calculate for the index. Of course negative earnings also skew results.

One way to get around this would be to calculate the average price of the index and the earnings per share of the index separately, and then divide the average price of the index by the average earnings per share of the index.

Different sources calculate these numbers in different ways. Some throw out negative P/Es (or earnings per share) and some don't. Some calculate the price and earnings per share separate and some don't, etc...

You'll need to understand how they are calculating the number in order to compare it to PEs of individual companies.