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What is the definition of the DAX Stock Index?

What is the definition of the DAX Stock Index?

Understanding the DAX Stock Index: A Comprehensive Guide

The DAX Stock Index, known as the Deutscher Aktien Index or GER40, has become a benchmark for investors, analysts, and economists interested in the German and European economies. This article will delve into the definition, history, and significance of the DAX, highlighting its impact on various industries and global financial markets.

An Overview of the DAX Stock Index

The DAX Stock Index symbolizes the performance of 40 leading and liquid German companies trading on the Frankfurt Stock Exchange. Initially created in 1988, it started with an index level of 1,163 points and included 30 companies. However, on September 3, 2021, the index expanded to include 40 companies, representing about 80% of the market capitalization on the Frankfurt Exchange.

  • Trading System: The index uses Xetra, an electronic trading system, to provide the prices used in its calculation.
  • Methodology: A free-float methodology calculates the index weightings, considering the average trading volume.
  • Global Recognition: Some of the renowned companies listed in the DAX include Volkswagen, Bayer, BMW, and Adidas.

DAX as a Benchmark and Barometer for the German Economy

For 35 years, the DAX index has served as both a barometer and a benchmark for the German economy, gauging the performance of its top 40 companies. It signifies around 80 percent of the market capitalization of listed stock corporations in Germany, spanning across various industries such as pharmaceuticals, consumer health, financial services, and sports equipment.

  • DAX Index Family: The DAX index belongs to Deutsche Börse Group and is part of a broader family, including MDAX®, tracking the next 50 largest companies, SDAX® with the next 70, and TecDAX® focusing on technology firms.
  • Automated Selection Process: Since September 2016, the process for selecting companies is quantitative, automated, and aligned with the existing DAX rules, ensuring tradability, replicability, and continuity.

Significance of the DAX in the Global Market

Understanding the DAX index goes beyond Germany, as it is often considered a reflection of Germany's economic health. The success of the companies in the DAX has led to the term "German economic miracle" or Wirtschaftswunder, symbolizing Germany's post-World War II rebirth.

Wide Range of Industries:

The DAX consists of multinational companies that impact both the domestic German economy and the global market. For example, Bayer AG specializes in pharmaceuticals and consumer health, Allianz SE provides financial services, and Adidas AG is involved in athletic apparel and equipment.

The DAX Stock Index offers a comprehensive view of the German economy, encompassing 40 of its largest and most traded companies. Acting as a vital economic barometer, it serves as a robust indicator of trends in Germany's economy and offers insights into global economic phenomena. With its automated selection process, extensive family of indices, and representation of a wide array of industries, the DAX stands as a prominent benchmark in the financial world, shaping investment strategies and economic analyses. Its legacy continues to influence not only Germany's economic landscape but the global economy as well.

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