G14 - Information and Market Efficiency; Event Studies; Insider TradingReturn

To test the diversification benefits of REIT sub-groups formed based on dividend payout ratios, we forecast ex-ante variance-covariance matrices using a rolling window correlation and a DCC model. Regression-based mean-variance spanning tests, mean-variance efficient frontiers, and a minimum variance portfolio allocation approach using ex-ante optimization frameworks are considered. A major finding of the current study is the dividend payout ratios of REITs affect REIT market diversification benefits. Apart from extending stock market index investors’ investment universe and providing more efficient (higher profitability and/or lower risk) portfolios, REITs offer diversification benefits directly related to dividend policies. A unique level of diversification is attained by classifying REITs based on their dividend payout ratios. As well, these REIT sub-groups are capable of left-shifting the efficient frontier of a market portfolio with either of the REIT sub-groups.

In this paper, we empirically investigate the effect of short selling on market volatility during exogenously-induced uncertainties. Using the Covid-19 pandemic and the onset of the Russian-Ukraine Conflicts periods as event study, we employ the asymmetric EGARCH model. We show high persistence and asymmetric effects of market volatility during the pre-covid outbreak and post-covid outbreak periods. We find evidence that short selling increases market volatility during the pre-covid outbreak period while the period of the Russian-Ukraine conflict is characterized by reduced volatility. We find no evidence of short selling effect on market volatility during the post-covid outbreak period. Our findings provide significant implications for short-selling strategies during crisis periods.

Following the landmark ruling by the German Federal Constitutional Court in Karlsruhe on 7th February 2014 in which they endorsed the efficient market hypothesis, we present evidence on the efficiency of the German financial market. Introducing a new variance bound test based on the Component-GARCH model of volatility to analyse the long- and short-runs effects on the efficiency of the German financial market, we test the price volatility of four markets: DAX stock index, German sovereign debt index as provided by Barclays and Bloomberg, Euro gold index by the World Gold Council and Euro currency index by the Bank of England. Our use of the Component-GARCH-T model highlight two key contributions, the first being the analysis of the efficiency of the market in the long and short runs. However, a more important contribution is the result of our variance bound test highlight the relatively strong acceptance of the efficient market hypothesis in both the short and long runs in all the observed financial markets. It must be stated our research is of importance to researches in both applied finance and portfolio management. The influencing question of what moves specific markets is crucial to market participants seeking market alpha for their investments strategies and portfolio optimisations.