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What is DAX Stock Index?

3146 reads · Last updated: December 5, 2024

The DAX—also known as the Deutscher Aktien Index or the GER40—is a stock index that represents 40 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. A free-float methodology is used to calculate the index weightings along with a measure of the average trading volume.The DAX was created in 1988 with a starting index level of 1,163 points. DAX member companies represent roughly 80% of the aggregate market capitalization that trades on the Frankfurt Exchange. The index was historically comprised of 30 companies but was expanded to 40 as of Sept. 3, 2021.

Definition

The DAX Index, also known as the German Stock Index or GER40, represents the 40 largest and most liquid companies traded on the Frankfurt Stock Exchange. The prices used to calculate the DAX Index are obtained through the electronic trading system Xetra. The index weights are calculated using the free-float method and average trading volume measurement.

Origin

The DAX Index was established in 1988 with an initial index level of 1163 points. It was designed to reflect the overall performance of the German economy and provide investors with a benchmark for the German stock market.

Categories and Features

The DAX Index originally consisted of 30 companies but was expanded to 40 as of September 3, 2021. DAX member companies account for about 80% of the total market capitalization traded on the Frankfurt Stock Exchange. The index uses a free-float market capitalization weighting method, meaning a company's weight in the index is based on its market capitalization of freely traded shares.

Case Studies

A typical case is Siemens AG, one of Germany's largest industrial manufacturing companies, which has been a major component of the DAX Index. Siemens' diversified global operations make it a significant representative of the German economy. Another example is SAP SE, a global leader in software, whose performance in the DAX reflects the importance of the technology sector in the German economy.

Common Issues

Investors might encounter issues such as market volatility and economic changes affecting the index when using the DAX Index. A common misconception is that the DAX Index only represents the industrial part of the German economy, whereas it actually covers multiple sectors, including finance, technology, and consumer goods.

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Trailing 12 Months

Trailing 12 Months (TTM) is a financial term that measures a company's performance over the past 12 consecutive months. This calculation is not limited to the company's fiscal year and can provide more timely performance data, applicable for calculating various financial metrics such as earnings, Earnings Per Share (EPS), Price-to-Earnings Ratio (P/E), and yield.

Dividend Discount Model

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Dividend Discount Model

The dividend discount model (DDM) is a quantitative method used for predicting the price of a company's stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to their present value.It attempts to calculate the fair value of a stock irrespective of the prevailing market conditions and takes into consideration the dividend payout factors and the market expected returns. If the value obtained from the DDM is higher than the current trading price of shares, then the stock is undervalued and qualifies for a buy, and vice versa.

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Compound Annual Growth Rate

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Fibonacci Retracement

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Log-Normal Distribution

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