What Is The DAX Stock Index

Dec 17, 2023 By Susan Kelly

The DAX, also called The Deutscher Aktien Index or the GER40, is a stock index comprised of 40 of the biggest and most flexible German businesses traded through the Frankfurt Exchange. Free-float is the method used to calculate the weightings of the index together with a measurement of the volume of trades that average. The DAX was established in 1988, with an initial index of 1,163 points. DAX members make up about 20% of the overall market capitalization at the Frankfurt Exchange. The index used to be comprised of 30 companies but was increased to 40 by September 3, 2021.

Understanding the DAX Stock Index

The DAX index, a database of 40 of the largest and most actively traded German firms, is believed by many analysts to be an indicator of the health of Germany's economy. The companies listed on the DAX are multinational corporations that impact the German national economy and the world economy. The performance of companies has heavily contributed, which refers to Germany's revival following World War II.

The companies that make up the DAX index are spread across a wide spectrum of industries. For instance, Bayer AG is a company that manufactures and distributes consumer health products. It was established in 1863. It is famous for its pain and allergy relief solutions. Allianz SE is a global company providing financial services, concentrating on providing its customers with assets management and insurance products.

Special Considerations

A bit different from other indices, DAX is regularly updated with futures prices for the following day, even after the main stock exchange has shut down. Updates are scheduled on the regular date for review; however, index members are taken off if they no longer are among the top 45 of the largest companies or added if they do not make those in the top 25. Most shares traded on the Frankfurt Exchange now trade on the electronic Xetra system, which has an adoption rate of nearly 95% for the shares of forty DAX members.

How Germany's DAX 40 Index Works

The index was released on July 1st, 1988. A large portion of DAX constituents is multinational corporations that hold an important role in the global economy and the German local market. The index accounts for more than 80% of the market capitalization of listed German corporations that trade in stocks, making it an important reference point for domestic and international investors.

The index can be used to compare its 40 distinct members or companies. This lets you determine what companies perform similarly to each other to increase your profits. It's similar to Dow Jones Industrial Average (DJIA) in the United States. The index employs two primary criteria for determining the companies included in its portfolio that are an appropriate benchmark for these comparisons—maintained its order book turnover over the last 12 months using the Xetra trading system and the Frankfurt floors for trade. A free-floating market capitalization on the day that is the last day of trading in a month.

Constituents should generally be listed on a Prime Standard segment (a section of the market that the EU regulates) to satisfy these standards. They must possess a minimum free float of 10 percent. They must maintain their legal or operational office in Germany. Foreign companies must be a part of either the European Union or an EFTA state. They must trade continuously on Xetra for at least 30 days of trading since their initial listing.

The constituents are reviewed every quarter. They could be removed or added based on the changes in their value. It is calculated using a minute-by-minute basis by using Xetra prices. Although it's possible to view it as a total or performance return indicator, this index has been calculated as a price index that solely tracks the performance of prices of its constituents and also as an index with a total return, which means that dividend and bonus payments within the DAX portfolio are invested.

Invest in DAX 40 Index

International investors can get exposure to the DAX through a range of funds that trade on exchanges that operate through European exchanges. They could also purchase specific index constituents. Certain firms are listed in American Depository Receipts (ADRs) within the U.S., but others only deal in foreign exchanges; therefore, international investors may require an account with a global or foreign brokerage to buy these securities.

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