Abstract

Retrograde Calculation of the DAX from 1955 to 1987

Since its introduction in 1988, the DAX has become the most important indicator for the performance of German stocks. In this article the results of a retrograde calculation of the DAX for the time period January 1955 to December 1987 are presented. The attendant problems are discussed in detail and the results are compared with the historic DAX time series calculated by Mella, which has been used frequently for analyses. The calculations show that by investing in the stocks of leading German firms considerably higher mean returns could have been achieved than by investing in German bonds. The DAX implicitly assumed the perspective of a German investor with a marginal income tax rate of 36% until 1993 (30% since then). Such an investor would have obtained an annual (arithmetic) mean return of 11.68% on German blue-chip stocks in the time period between 1955 and 1991. Between 1960 and 1987 the mean return was 8.19% (in each case after personal income tax). On the basis of the Mella time series only 5.58% were recorded in the latter period. This result can be explained mainly by the fact that Mella generated his data by linking different time series of indices. Among other things, these series did not include dividends over a long period of time, causing a systematic downward bias in estimated returns. We hope that the results of this study can contribute to rank German stocks more clearly as a desirable investment, both in the past and presumably as well in the future.