AN INDEX I SA NINDEX I SA NINDEX

Before June 1999, Deutsche Borse AG published two parallel index values, one calculated from floor prices and the other from Xetra prices. Since 1999, Deutsche Borse has calculated the DAX blue-chip index and the MDAX mid-cap index using only the prices of the electronic trading system Xetra. This paper analyzes the quality of the two indexes empirically. The results allow us to evaluate the decision taken by Deutsche Borse AG. We find that the Xetra-DAX is superior to the floor-DAX, but that the Xetra-MDAX is inferior to the floor MDAX. Our analysis also provides insights on the relative merits of floor and screen trading systems. JEL-Classification: C32, G14.

[1]  Esa Jokivuolle.  Measuring True Stock Index Value in the Presence of Infrequent Trading , 1995, Journal of Financial and Quantitative Analysis.

[2]  James D. Hamilton.  Time Series Analysis , 1994 .

[3]  M. Lovell,et al.  Tests of the Rational Expectations Hypothesis , 1986 .

[4]  Reena Aggarwal,et al.  Price Discovery in Initial Public Offerings and the Role of the Lead Underwriter , 2000 .

[5]  E. Theissen.  Price Discovery in Floor and Screen Trading Systems , 2002 .

[6]  Olaf Korn,et al.  Trading System and Market Integration , 1997 .

[7]  M. Martens,et al.  Price discovery in high and low volatility periods: open outcry versus electronic trading , 1998 .

[8]  E. Theissen.  Floor Versus Screen Trading: Evidence from the German Stock Market , 1999 .

[9]  C. Nelson,et al.  A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the ‘business cycle’☆ , 1981 .

[10]  Ananth N. Madhavan,et al.  Price Discovery in Auction Markets: A Look Inside the Black Box , 2000 .

[11]  Gang Shyy,et al.  Price transmission and information asymmetry in Bund futures markets: LIFFE vs. DTB , 1995 .

[12]  Andrew C. Szakmary,et al.  Price discovery in petroleum markets: Arbitrage, cointegration, and the time interval of analysis , 1994 .

[13]  Francis A. Longstaff,et al.  Electronic Screen Trading and the Transmission of Information: An Empirical Examination , 1994 .

[14]  Francis Breedon,et al.  Electronic Versus Open Outcry Markets: The Case of the Bund Futures Contract , 1998 .

[15]  Hartmut Schmidt,et al.  Parkett oder Computer? , 1993 .

[16]  Bruno Biais,et al.  Price Discovery and Learning during the Preopening Period in the Paris Bourse , 1999, Journal of Political Economy.

[17]  James T. Moser,et al.  Spreads, information flows and transparency across trading systems , 1997 .

[18]  Jesus Gonzalo,et al.  Estimation of Common Long-Memory Components in Cointegrated Systems , 1995 .

[19]  P. Wachtel,et al.  The Structure of Expectations of the Weekly Money Supply Announcement , 1983 .

[20]  Stephen Figlewski,et al.  The Formation of Inflationary Expectations , 1981 .

[21]  Thierry Foucault,et al.  Equity Trading Systems in Europe: A Survey of Recent Changes , 1998 .

[22]  E. Theissen.  Der Neue Markt: Eine Bestandsaufnahme , 1998, Journal of Contextual Economics – Schmollers Jahrbuch.