An Index is an Index is an Index?

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