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This chapter investigates the impact of policy interest rate news from the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) on stock returns and volatilities of U.S. NYSE and German DAX listed commercial banks. We find that Fed news has the most influence on both U.S. and German listed bank stocks and an unexpected policy rate increase (decrease) lowers (raises) returns and raises volatility in the majority of cases. On the other hand, ECB news generally increases bank stock volatility in the United States but has little impact within its own domestic banking industry. While our results for the U.S. listed banks confirm that their stock prices are more responsive in bad economic times and also during periods of monetary tightening, we find disparities for German banks suggesting that U.S. and European banking industries respond heterogeneously to monetary policy news but the Global Financial Crisis increased the sensitivity of all banks to monetary policy news.

The German stock market has developed by leaps and bounds over the past two years. German legislators have, for example, introduced a large number of improvements that have brought the underlying conditions of the German financial markets into line with international standards. Market participants thereby have the potential — above all through the introduction of a single European currency — to actively avail themselves of the resulting opportunities. The future will see progressive globalisation and increasing international competition on the financial markets and the markets for goods and services. There will also be a greater need for pension plans funded through the capital markets. These developments will further promote the utilisation of shares as a financing and investment instrument in Continental Europe and, especially, in Germany. Introduction of the Euro will considerably reinforce these developments and the integration of markets. The German financial markets are well prepared to meet these challenges. Market participants are taking advantage of the improved underlying legal environment to develop their position among international competitors.

The purpose of this paper is to examine volatility transmissions between portfolios of cross‐listed equities and exchange rate differences and also the volatility persistence for home, foreign equities, and exchange rate differences in the UK and German markets.

A primary focus of this paper is to see if there is an impact first on the volatility persistence for foreign equities that are listed in the UK and German markets, second on the respective home portfolios of cross‐listed equities, and third on the exchange rate differences. In addition, whether there are any bilateral spillovers between the following equity portfolios: foreign cross‐listed equities, home cross‐listed equities, and also local or global exchange rate differences are investigated.

The paper finds that the volatility persistence is more prominent than error persistence from cross‐listed equities, foreign or home, and the exchange rate differences. Furthermore, the transmission mechanism indicates a bilateral integration process in some of the cases that were examined. Based on these results, it is concluded that in the UK market the foreign cross‐listings affect less the domestic equities compared to the German market.

This paper examines the interdependence of portfolios of home and foreign equities for cross‐listings that belong to the same stock exchange with two exchange rates, a local and a global one in order to provide more evidence in this area of literature.

Eckbo, Masulis, & Norli (2000) question previous examination of initial public offering (IPO) underperformance with the keen argument that the increase in the number of traded shares and the infusion of equity reduce two significant premia in the stock’s return, namely, liquidity risk and financial risk. The new market for high (expected) growth stock in Germany is examined for evidence of underpricing, underperformance, and liquidity improvements during the first two complete years of operation – 1998 and 1999. The initial trading period examines the offering day and also the first ten days of trading (for the investor who can not get allocation but enters the secondary market). The postissue performance study period is taken as the 5‐day period one‐year after the IPO. Using regression of four underpricing measures upon issuing firm characteristics deemed important from the extant literature, we seek to explain the degree of underpricing discovered. We find that substantial underpricing occurs and performance is high one year later, even adjusted for the German market return for the period or the firm‐specific sector performance for the same period. Trading dwindles for most stocks after the offering day. One year later, the trading of the stock is even lower. We do find that the more active the trading in the initial period, the greater the returns and trading one year after.

German real estate investment trusts (REITs) are a small but important property investment vehicle in the European REIT landscape, offering German commercial property investment exposure in a liquid format, compared to the more property development-focused German listed property companies and the popular German open-ended property funds. The purpose of this paper is to assess the emergence of the German REIT market and the risk-adjusted performance and portfolio diversification benefits of German REITs in a mixed-asset portfolio over 2007-2015. The post-global financial crisis (GFC) recovery of German REITs is highlighted. Enabling strategies for the ongoing development of the German REIT market are also identified.

Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of German REITs over 2007-2015 are assessed. Efficient frontier and asset allocation diagrams are used to assess the role of German REITs (and German property companies) in a mixed-asset portfolio. Sub-period analysis is used to assess the post-GFC recovery of German REITs.

German REITs delivered lesser risk-adjusted returns compared to German stocks over 2007-2015, with limited portfolio diversification benefits. However, since the GFC, German REITs have delivered strong risk-adjusted returns, but with continued limited portfolio diversification benefits with German stocks. German REITs also out-performed German property companies. Importantly, this sees German REITs as strongly contributing to the German mixed-asset portfolio across the portfolio risk spectrum in the post-GFC environment.

German REITs are a small but important market at a local, European and global REIT level. The results highlight the major role of German REITs in a German mixed-asset portfolio in the post-GFC context. The strong risk-adjusted performance of German REITs compared to German stocks sees German REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as many investors (e.g. small pension funds) use German REITs (and German listed property companies) to obtain their German property exposure in a liquid format, as well as the increased importance of blended property portfolios of listed property and direct property.

This paper is the first published empirical research analysis of the risk-adjusted performance of German REITs, and the role of German REITs as a listed property vehicle in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of German REITs in a portfolio.

This paper examines bilateral and multilateral cointegration properties of the German stock market and the three most credible Central European candidates for membership in the European Union. The cointegration tests cover the time period of July 5, 1995, to March 27, 2002. The DAX is used to represent the German equity market and the IFCI indices represent the Central European equity markets. Application of the Johansen (1988) cointegration procedure indicates that there is no long‐term relationship between the German market and the Central European markets, either individually or as a group. The Granger‐causality test does reveal some short‐term effects running from the German to the Polish market but no reverse causality. Overall, the results suggest that neither trade, financial liberalization, nor the introduction of the Euro has yet had sufficient impact to bring these markets into a long‐term relationship.

The purpose of this study is to identify determinants of involuntary cross-listing (CL) of US restaurant companies on the Frankfurt Stock Exchange (FSE).

The study utilizes a mixed method design with an interview and a pooled logistic regression analysis with panel dataset using the company-clustered standard error to develop and test the hypotheses.

The empirical investigation identified determinants of involuntary CL by examining ten factors, including size, firm growth opportunities, leverage, financial flexibility, international operation, profitability, overall German economic condition, industry growth opportunities, restaurant type, and local operation. The study found three determinants – large size, favorable economic condition in Germany and positive industry growth opportunities – utilizing the sample that covers the entire periods of involuntary CL of US restaurant companies on the FSE.

This paper uncovers the phenomenon of involuntary CL, which many stock exchanges have strategically adopted by simplifying listing requirements for companies already listed in other stock markets, focusing on US restaurant companies. The number of involuntarily cross-listed US restaurant companies greatly increased to 50 percent of domestically listed US restaurant companies while those companies are largely unaware of the phenomenon. The research advances understanding of involuntary CLs, which previously received little attention.

In this chapter, we describe the rise and fall of Germany’s Neuer Markt from its promising start to its ultimate failure. We show that the Neuer Markt was designed to serve the special needs of small and medium sized growth firms. However, some regulatory flaws, insufficient means to enforce the rules, the IPO frenzy and the bursting of the stock market bubble destroyed its reputation beyond recovery. The closing of the Neuer Markt and the rebranding and restructuring of the entire Frankfurt stock market indicate the seriousness of the crisis of German public equity markets.

Using daily returns from 1980‐2006, we find a significant contemporaneous association between all European Union (EU) equity markets and Germany. There is, however, no significant indication that the German stock market leads or lags the movements in the other EU stock markets. A higher share of imports by Germany from other EU countries, as well as fluctuations and increased volatility in the exchange rate, have negative effects on stock market co‐movements. Conversely, the difference in equity market capitalization with Germany, the greater the foreign direct investment by Germany, and the fact of belonging to the eurozone all contribute to greater stock market co‐movement.

The purpose of this paper is to investigate the relationship between option’s implied volatility smirk (IVS) and excess returns in the Germany’s leading stock index Deutscher-Aktien Index (DAX) 30.

The study defines the IVS as the difference in implied volatility derived from out-of-the-money put options and at-the-money call options. This study employs the ordinary least square regression with Newey-West correction to analyse the relationship between IVS and excess DAX 30 index returns in Germany.

The authors find that the German market adjusts information in an efficient way. Consequently, there is no information linkage between option volatility smirk and market index returns over the nine years sample period after considering the control variables, global financial crisis dummies, and the subsample test.

This study finds that the option market and the DAX 30 index are informationally efficient. Implications of the findings are that the investors cannot profit from the information contained in the IVS since the information is simultaneously incorporated into option prices and the stock index prices. The findings of this study are applicable to other markets with European options and for market participants who seek to exploit short-term market divergence from efficiency.

The relationship between IVS and stock price changes has not been investigated sufficiently in academic literature. This study looks at this relationship in the context of European options using high-frequency transactions data. Prior studies look at this relationship for only American options using daily data. Pricing efficiency of the European option market using high-frequency data have not been studied in the prior literature. The authors find different results for the German market based on this high-frequency data set.