DAX
The DAX is Deutsche Börse’s blue-chip equity index, tracking Germany’s 40 largest and most actively traded companies (expanded from 30 to 40 constituents in September 2021). It is tradeable as a cash index and through a full family of Eurex derivatives — the full-size DAX future (FDAX, EUR 25 per index point), Mini-DAX (one-fifth size), Micro-DAX futures and DAX options (ODAX). Eurex describes DAX and EURO STOXX 50 futures as among the most liquid equity-index products in Europe, so although the DAX is shallower than the S&P 500 it is still a deep, low-cost market by global standards — comfortably within the cost regime where regime-switching timing strategies remain viable.
In this vault the DAX is the principal non-US robustness market for HMM regime-detection studies. Bulla et al. 2010 include it among the five equity indices in their roughly four-decade out-of-sample test of a volatility-defined two-state Markov Regime-Switching Model, and Shu Yu and Mulvey 2024 test it over 1990-2023 with a 10bp one-way cost and trading-delay robustness checks. The DAX result is instructive precisely because it is middling: in Shu et al. the HMM-guided 0/1 strategy returned 6.4% against buy-and-hold’s 6.8% — roughly matching the index on return while cutting the maximum drawdown from -72.7% to -40.5%. The jump-model variant did better (8.6%), but on the DAX as on the S&P 500 the headline benefit of regime filtering is volatility and drawdown control, not excess return.
The DAX therefore reinforces the pattern that holds across deeply liquid developed-equity indices: regime detection is a defensible risk-management overlay whose value is robust across markets, but its standalone profitability is regime- and market-dependent and shrinks once realistic trading delays are imposed. As a non-US market with a different macro history (Eurozone cycles, the 2011-2012 sovereign-debt stress), the DAX is valuable evidence that the regime-switching result is not a US-specific artefact — but equally that crossing a border does not turn a risk filter into an alpha source.
Shu Yu and Mulvey 2024 [trades_market] DAX Bulla et al. 2010 [tests_strategy] Regime-Based Asset Allocation DAX [supports] Regime Classification
Connections
- Hidden Markov Model Regime Detection — trades_market, source: https://arxiv.org/html/2402.05272v3
- Markov Regime-Switching Model — detects_regime, source: https://mpra.ub.uni-muenchen.de/21154/1/MPRA_paper_21154.pdf
- Bulla et al. 2010 — tests_strategy (one of five indices), source: https://mpra.ub.uni-muenchen.de/21154/1/MPRA_paper_21154.pdf
- Shu Yu and Mulvey 2024 — reports_underperformance (HMM 6.4% vs B&H 6.8%), source: https://doi.org/10.1057/s41260-024-00376-x
- Regime-Based Asset Allocation — tests_strategy, source: https://doi.org/10.1057/s41260-024-00376-x
- Transaction Costs and Slippage — relates (low costs keep regime strategies viable), source: https://www.eurex.com/ex-en/markets/idx/dax