Deutschmark to Euro - Dax

Peter_Williams

Was the original Dax index based on the market cap in DM?
What happened at the change from DM to Euro in 2002?

Malthusian

Essentially nothing. In simplified terms, when markets closed on 31 December 1998 the index closed at 5,000-odd. On 1 January 1999 (or whenever German markets opened, assuming the Germans get New Year's Day off) it would have opened still at 5,000-odd.

Its constituents may have all gone from being worth so many hundred billion marks to a fewer hundred billion euros, but the DAX isn't quoted in marks or euros. It started at an arbitrary 1,000 when the index was first calculated and reflects the change in the total market cap of all its constituents since then.

Peter_Williams

Malthusian wrote: »

Essentially nothing. In simplified terms, when markets closed on 31 December 1998 the index closed at 5,000-odd. On 1 January 1999 (or whenever German markets opened, assuming the Germans get New Year's Day off) it would have opened still at 5,000-odd.

Its constituents may have all gone from being worth so many hundred billion marks to a fewer hundred billion euros, but the DAX isn't quoted in marks or euros. It started at an arbitrary 1,000 when the index was first calculated and reflects the change in the total market cap of all its constituents since then.

Thanks for your reply.
But isn't market cap quoted in a currency?
How can you change the currency, without affecting the market cap figure?

Peter_Williams

For example:

At the inception of the Dax index:
Total market cap of all companies = 1000 million DM = index set at 1000.
A few years later, total market cap = 5000 million DM = index is now 5000.

After the change, total market cap is now 2500 million Euro.
How can index now still be 5000?

Does the index continue to input what the market cap would have been in DM figures (even though the market cap is now in Euro?)

sal_III

Peter_Williams wrote: »

For example:

At the inception of the Dax index:
Total market cap of all companies = 1000 million DM = index set at 1000.
A few years later, total market cap = 5000 million DM = index is now 5000.

After the change, total market cap is now 2500 million Euro.
How can index now still be 5000?

Does the index continue to input what the market cap would have been in DM figures (even though the market cap is now in Euro?)

Say one index point is worth 1m DM or 0.5m Euro the end result is the same, what so hard to comprehend? The exchange was fixed at 2DM=1Euro it's just swapping the label, there was no currency conversion or floating exchange rate.

Peter_Williams

sal_III wrote: »

Say one index point is worth 1m DM or 0.5m Euro the end result is the same, what so hard to comprehend? The exchange was fixed at 2DM=1Euro it's just swapping the label, there was no currency conversion or floating exchange rate.

Ok. Thanks. I get it now.

redux

Peter_Williams wrote: »

For example:

At the inception of the Dax index:
Total market cap of all companies = 1000 million DM = index set at 1000.
A few years later, total market cap = 5000 million DM = index is now 5000.

After the change, total market cap is now 2500 million Euro.
How can index now still be 5000?

Does the index continue to input what the market cap would have been in DM figures (even though the market cap is now in Euro?)

As even your post shows, the index number is just a ratio, dimensionless, no units.

The currency conversion has been absorbed into that ratio.

Take any share price over any time span, and work out the increase. If it's doubled in value the ratio is 2, without pence or cents. If the listing has moved domicile to another country, or if there's been a 5 for 1 share split those effects would also disappear in the calculation as the value of the holding is still double.

Ok, the country move example might need to take into account subsequent exchange rate variation if calculated by an investor in the original territory, but that doesn't apply to DM vs Euro as this was permanently fixed.