James HesterThe DAX index is the best-known of all the indices owned by German stock exchange operator Deutsche Börse.
It represents the share price performance of the 30 largest companies listed on the Frankfurt stock exchange, accounting for approximately 80% of the market cap of all public-listed German firms.
As well as being the benchmark of choice for a large number of investment products, the DAX is also viewed as a gauge for the German economy.
What is DAX index?
The DAX was created in the late 1980s by journalist Frank Mella, the former editor of financial newspaper Börsen-Zeitung. The index derives its name from the words Deutscher Aktienindex, or German stock index.
Today, the DAX is calculated using the Xetra electronic system and updated each second of every trading session. When Deutsche Börse began computing the index in July, 1988, it was at 1,163. The DAX´s base level is 1000 as at 31, December 1987.
The DAX is intended to represent the performance of the 30 largest publicly-listed companies in Germany, taking into account both volumes of shares traded and market cap.
There are two versions of the DAX, a so-called performance index version and a price index one. The performance index DAX is the most widely followed. As well as changes in share prices, it incorporates reinvested dividend payments into its calculation.
The trading floor at the Frankfurt stock exchange. Source: Deutsche Börse DAX family
While the DAX is the most prominent of all the indices operated by Deutsche Börse, and one of the most closely watched indices in the world, it is just one of many indices that bear the DAX name.
Other DAX indices include the MDAX, which tracks the performance of the 50 biggest and most liquid companies that lie just below the top 30 found in the DAX itself. The SDAX, meanwhile, is composed of the 50 next biggest companies that follow on from those in the MDAX index.
There is also the TecDAX, which represents the performance of 30 large technology sector names but which are two small to be listed in the DAX.
DAX performance
As with other major equities indices across the world, the DAX rallied strongly during the dot-com boom. It rose from 2,473 in July, 1996 to reach a peak of 7,644 in February, 2000, an increase of around 179% in less than four years.
During the subsequent bear market, the DAX reached a low of 2,423 in March, 2003, a peak-to-trough fall of 68%. It wasn´t until 2007 that the DAX had recovered to its earlier peak of February, 2000.
The DAX was hit hard by the global financial crisis and subsequent recession, with the German economy contracting. In percentage terms however, this was less severe for the DAX than the bear market experienced at the beginning of the millennium.
The index plunged from a peak of 8,067 in December, 2007 to reach a low of 3,843 in February, 2009, a peak-to-trough fall of 52%.
Easy money
Along with other major global equities indices, the DAX has rallied strongly over the past several years. The US Federal Reserve was among those central banks that pioneered the use of quantitative easing in response to the financial crisis.
Ultimately, the European Central Bank also adopted ultra-low interest rates and quantitative easing to deal with the economic slowdown that came in the wake of the global financial meltdown.
Easy monetary policy had helped the DAX reach an all-time high of 12,888 by June, 2017, marking a 235% rise for the index over a period of approximately eight years.
DAX chart. Source: Deutsche BörseDAX volatility
With just 30 stocks in the index, the DAX can be more volatile than the FTSE 100 or S&P 500. However, in common with the other major global indices, volatility is currently at a low.