Why did the DAX change from the DAX 30 to the DAX 40?

The DAX (Deutscher Aktienindex) is a stock market index that represents the performance of the 30 largest and most liquid companies listed on the Frankfurt Stock Exchange. However, in September 2021, it was announced that the DAX would be expanded to include 40 companies instead of 30. This decision was made to keep up with the changing dynamics of the German stock market and better represent its overall performance.

Here are a few reasons why the DAX changed from the DAX 30 to the DAX 40:

1. Better representation: The expansion to include 40 companies allows for a more comprehensive representation of the German stock market. By including additional companies, the DAX can better reflect the diversity of industries and sectors within Germany’s economy. This broader representation provides investors with a more accurate measure of the overall market performance.
2. Inclusion of smaller but influential companies: The DAX 30 primarily consisted of large-cap companies. However, the German stock market is home to numerous mid-cap companies that play a significant role in the country’s economy. Including these smaller yet influential companies in the DAX 40 ensures their representation and acknowledges their impact on the market.
3. Enhanced liquidity and tradability: With the addition of more companies, the DAX 40 is expected to have increased liquidity and tradability. This means that investors will have more options when buying or selling stocks within the index. The improved liquidity can lead to more efficient price discovery and facilitate smoother trading activities.
4. Adapting to market changes: The decision to expand the DAX also reflects the changing composition of the German stock market. Over the years, new companies have emerged and grown in significance, while others have declined or faced challenges. The expansion allows for a more dynamic index that can better adapt to these market changes and reflect the current economic landscape.

The change from the DAX 30 to the DAX 40 is aimed at ensuring that the index remains relevant and reflects the evolving nature of the German stock market. It provides investors with a better representation of the overall market performance and enhances liquidity and tradability. As the German economy continues to evolve, the DAX 40 will play a crucial role in tracking its progress and serving as a benchmark for investors.