Stock exchange: Dax and Dow Jones - the most important stock indices for us. If there is a crisis here, the economy trembles. But they are not the only indexes.
- The German stock index ( DAX for short) measures the performance of the 30 largest German companies
- The counterpart from the USA is the Dow Jones Industrial Average (shortened in Europe as Dow Jones )
- What happens here reflects the economic situation in many ways - but sometimes not.
Frankfurt / New York - The Frankfurt Stock Exchange trades from 9:00 a.m. to 5:30 p.m. At the close of trading on the floor, it is clear, among other things, whether the DAX has risen or fallen. But what does that actually mean? What is a stock index ? And why are indices seen as a mirror for the state of the economy?
Stock exchange: Dow Jones and Dax - that's the story
Railroad companies and steamship companies made the predecessor of the Dow Jones in 1884 - today's Dow Jones Industrial Average was launched in 1896. Mr. Dow and Mr. Jones then totaled the values of all twelve companies represented and divided them by twelve: the stock index was ready.
Only one company has remained in the index since then, namely General Electrics. Today it lists the 30 most important public companies in the USA - from industrial companies to burger chains to banks and insurance companies. A Wall Street Journal committee decides who is accepted.
This is different with the German stock index DAX: Here there are fixed admission criteria - as with football, a company can also descend into the MDax below. The number of companies traded is the same, including 30 listed companies. And the DAX is younger: It has only existed in this form since 1988. But its predecessors date back to 1871.
Stock exchange: DAX and Dow Jones - How are the indices calculated?
It is no longer as simple as Mr. Dow and Mr. Jones handled it: the aggregate values of the companies are divided by the Dow Jones by a value that absorbs changes in stock splits and is said to result in a more reliable mean.
Things are different with the Dax: different companies are evaluated differently. If higher-valued stocks (for example from Siemens) rise, the Dax rises more than in the case of lower-valued stocks.
The market value of a single company is calculated by the Dax by its market price, multiplied by all company shares that are not owned by major shareholders or by the company itself. "Points" and "counter" mean the same thing: 1000 points were set as the starting value in 1987, the percentage change always published is based on the previous day.
Stock exchange: Dax and Dow Jones - mirror of the entire economy?
In addition to the DAX and Dow Jones, there are a large number of other stock market indices that deal with specific industries or specific investment strategies. The companies Aldi and Lidl are not represented in the German stock index.
Sometimes there is criticism of the calculation of the indices or the fact that a committee decides on the composition of the Dow Jones and there is little transparency.
How do you see the #DAX in four weeks? Assessment of the investors we interviewed and analysis by @Der_Goldberg tomorrow from 12 noon.
- Frankfurt Stock Exchange (@boersefrankfurt) March 17, 2020So although a lot is thought of in the calculation, experts, such as ARD, sometimes see the S&P 500 Index as more meaningful for the USA. Nevertheless, the Dow Jones is still seen as the most important indicator of the state of the US economy and in Germany the Dax is recognized as the key interest rate.
In times of crisis, trading on the stock exchanges can be suspended - this option is sometimes used for short periods when the corona virus spreads in the USA.