An investor can generate higher returns on the German stock market if he is using an active portfolio management strategy rather than its passive counterpart. This is possible because the market is not efficient and the DAX, namely the market portfolio, can be outperformed in regard to the average annual return and its variance. Therefore, the CAPM does not hold for the German stock market. The investor has to use the 10 weeks old changes of the ifo business climate index to forecast the DAX movement in the upcoming month. Even though this forecasting method only gave the correct trading signal for 56% of the months between 1991 and 2011, it outperformed the Buy and Hold strategy by 324 basis points. The main reason for this is that the business index was able to warn the investor of months in which the DAX lost over 10% of its value. The superiority of the active strategy was still valid when transaction costs were taken into account and was even stronger when call money was the alternative investment to the DAX rather than cash.

WHAT WAS DONE? This study researches the success of several value investment strategies in the stock markets of the United Kingdom and Germany based on nine firm fundamentals that are extracted from listed firms annual financial statements. In this regard, we first examine alternative forecast combination methods in a novel way to utilise fully the financial information at hand. Second, we examine the drivers of investment returns, particularly the role of information uncertainty, for which a new direct measure is developed. Finally, we evaluate the performance of these financial health investment strategies in alternative institutional environments by focusing on the differences between the two markets regarding both their corporate culture and their legal environment. WHY WAS IT DONE? Similar to economics, the discipline of finance is a social science because its observations emanate from economic transactions between humans. Nevertheless, a significant part of the research in this area is undertaken by means that are almost exclusively applied to the natural sciences, such as mathematics or physics. Although the reasons seem manifold, an increased form of scientificity, in conjunction with greater credibility of the research process and results, is deemed to be of primary importance. However, the benchmark for evaluating these research outcomes differs from those used in the natural sciences. From the example of the efficient market hypothesis one can see that alternative research results that cast serious doubt upon efficiency per se are disregarded as aberrations, leading to the assumption that the hypothesis in its entirety is more or less valid. This study assumes that inefficiencies in the stock market do exist for prolonged periods of time and investors are actually able to benefit from them. HOW WAS IT DONE? Secondary financial statement data of listed companies in the United Kingdom and Germany were downloaded from Datastream for the period between 1992 and 2010. A quantitative analysis of the significance of the correlation between groups of firms with similar financial characteristics and their one-year-ahead stock returns was subsequently performed. Various combination methods for differential weighting of individual financial statement items were conducted. The aim was to increase the profitability of the investment strategy. WHAT WAS FOUND? In general, a classification of stocks according to certain internal criteria of financial health is capable of separating future winners from losers and at the same time confirms the results of a previous US study. More specifically, we first show that a wide range of combination methods generate profitable investment strategies whereby especially measures of profitability are the central indicator of a firm s future performance. Secondly, the more complex methods neither consistently nor substantively outperform the simpler methods. Thirdly, information uncertainty does not seem to be the prime driver of the profitability of an investment strategy. Lastly, we show that financial health investment strategies are profitable both in market-oriented, common law settings and in bank-oriented, code law settings.

Die vorliegende Dissertation umfasst drei eigen¬ständige Aufsätze zum deutschen Aktienmarkt. In allen drei Aufsätzen stehen eigene empirische Unter¬suchungen im Mittel-punkt. Bisherige empirische Untersuchungen zum deutschen Aktienmarkt konzentrieren sich meist auf das höchste deutsche Marktsegment, den Amtlichen Markt in Frankfurt. Die Anzahl der empirischen Arbeiten zu den Aktien der unteren Marktsegmente, insbesondere zum Geregelten Markt in Frankfurt, ist hingegen gering. Der erste Aufsatz beschäftigt sich mit dem Geregelten Markt und analysiert, ob die Performance mit dem Amtlichen Markt zu vergleichen ist. Beispielsweise war unklar, ob der Geregelte Markt ein ähnliches Desaster wie der Neue Markt darstellt. Wir stellen fest, dass die Aktien des Geregelten Marktes durchaus mit denen des Amtlichen Marktes mithalten können. Im zweiten Aufsatz wird untersucht, inwiefern das das CAPM nach Sharpe (1964), Lintner (1965) und Mossin (1966) die Renditen deutscher Aktien erklären kann. Zusätzlich wird untersucht, ob das CAPM in Deutschland um Faktoren für Size und Buchwert-Marktwert erweitert werden sollte. Auf Basis unserer Untersuchungen stellen wir fest, dass eine Erweiterung des CAPMs um Size- und/oder Buchwert-/Marktwertfaktoren derzeit nicht sinnvoll erscheint. In beiden Aufsätzen und in empirischen Untersuchungen im Allgemeinen spielt die Qualität der verwendeten Daten eine wichtige Rolle. Dementsprechend wird im dritten Aufsatz die Qualität der Datastream Daten für den deutschen Aktienmarkt untersucht. Hierbei kommen wir zu dem Ergebnis, dass Datastream als primäre Datenquelle für den deutschen Kapitalmarkt vor 1990 ungeeignet ist. Nach 1990 kommt es zwar zu zufälligen Fehlern in Datastream, diese sind allerdings nur selten gravierend. / This thesis consists of three empirical essays on the German stock market. Prior empirical research on the German stock market primarily focused on the top market segment in Germany, the Amtlicher Markt in Frankfurt. Only few empirical studies look at the lower market segments like the Geregelter Markt in Frankfurt. The first essay examines whether the performance of the stocks of the Geregelter Markt is comparable to the performance of the stocks listed in the Amtlicher Markt. For example, it was unclear whether the stocks from the Geregelter Markt performed as disastrous as the stocks from the Neuer Markt. We find that the performance of the stocks from the Geregelter Markt is comparable to those of the Amtlicher Markt. The second essay, examines whether the CAPM of Sharpe (1964), Lintner (1965) and Mossin (1966) explains the cross-section of German stock returns. Additionally, we evaluate whether the CAPM should be extended by factors for size and book-to-market. Based on our results, we conclude that the CAPM should not be extended by size and book-to-market in Germany. Data quality is an important aspect of both essays. As a consequence, we examine the quality of equity data from Datastream for the German stock market in the third essay. We conclude that before 1990 Datastream should not be used as the primary data source for empirical studies on the German stock market. After 1990, we find random errors in Datastream, but these are rarely severe.