Investigating DAX Inclusion and Exclusion Event Returns

Summary

The document describes an event study of stock additions to and removals from German DAX indices. The researcher gathered company data and announcement and effective dates, then used a market model to estimate returns around the events. The reported pattern is negative significant returns around inclusion and positive returns around exclusion, opposite to the commonly expected direction described for studies of US index changes.

The document asks for explanations but supplies no proposed cause or supporting analysis beyond that initial result. It does not specify event-window choices, sample construction, robustness checks, or controls for confounding news, so the result should be treated as a research question rather than a confirmed index effect. It illustrates how event-study findings can differ across markets and why design choices and institutional context need investigation before drawing conclusions.

Key ideas

• The researcher studies German stock index additions and removals using an event-study approach.
• A market model is used to estimate abnormal returns around event dates.
• The reported return directions differ from the pattern the researcher expected from US index studies.
• The document poses a question about the cause and does not establish an explanation.
• Event-window design, confounding news, and sample construction could affect interpretation.

Tags

# How does one explain the negative returns around the event of stock inclusion in DAX indices?


# How does one explain the negative returns around the event of stock inclusion in DAX indices?












Greetings there friends,

I am doing a small research on the effects of the event of inclusion and exclusion of a stock from DAX indices (german indices), to cut the story short, i have downloaded data from the Thompson Reuters Datastream platform for more than 140 german companies from 2005 up to 2020 and their inclusion/exclusion announcement and effective dates, when i undergo the event study and run the regressions by using a market model, which is pretty much the benchmark model, I get negative significant returns around the event date (event window) for the event of inclusion and positive for the event of exclusion.

Does anyone have any idea why would this happen, most event studies on stocks' inclusions in the S&P500 and US indices show that stocks show positive returns within the event window for the event of inclusion and negative for the event of exclusion.

Thanks in Advance.

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