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Does the Federal Constitutional Court Ruling mean the German Financial Market is Efficient?

Author

Listed:
  • Bachar Fakhry

    (School of Accountancy & Finance, The University of Lahore)

  • Christian Richter

    (Faculty of Management Technology, German University in Cairo)

Abstract

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 three 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. The results seem to be indicating a relatively strong acceptance of the efficient market hypothesis in both the short and long runs in all the observed financial markets.

Suggested Citation

  • Bachar Fakhry & Christian Richter, 2018. "Does the Federal Constitutional Court Ruling mean the German Financial Market is Efficient?," Working Papers 46, The German University in Cairo, Faculty of Management Technology.
    • Handle: RePEc:guc:wpaper:46
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    File URL: http://mgt.guc.edu.eg/wpapers/046Fakhry_2018.pdf
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    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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