Does DAX inclusion hurt more than it helps?

Inclusion in Germany's benchmark DAX index may not deliver the sustained performance boost investors typically anticipate, according to a research note from Deutsche Bank ahead of the index's September rebalancing. Evaluating 20 years of index history, analysts found that stocks entering the DAX usually underperform on their official inclusion day by a median of 2%, whereas stocks being removed tend to outperform the index by 2% on the rebalance date. The historical underperformance among new entrants often extends throughout their inaugural year. Deutsche Bank noted that joining companies underperformed the DAX by a median of 8% over the 12 months following inclusion, with only 39% (16 of 41 stocks) outperforming the benchmark. This pattern is largely driven by profit-taking, as candidates typically rally and outperform the DAX by a median of 20% in the year leading up to their addition. While DAX inclusion does not reliably drive share price outperformance, it significantly boosts trading liquidity. Historical data indicates trading volumes for new constituents increase by a median of 15%, whereas departing stocks see an equivalent 15% drop in volume.