Irish Equity Research Articles

European Equity Market Contagion: An Empirical Application to Ireland's Sovereign Debt Crisis

This paper examines the time-varying conditional correlations of daily European equity market returns during the Irish sovereign debt crisis. A dynamic conditional correlation (DCC) multivariate GARCH model is used to estimate to what extent the collapse of Irish equity markets and subsequent troika intervention in Ireland spilled over upon European equity markets during this crisis. During the Irish financial crisis from 2007 to 2010, strong contagion effects are uncovered between Irish equity markets and the investigated European equity markets. The contagion effects are found to ease dramatically in the period after troika intervention in Irish finances. This result supports the use of bailouts and external financial intervention as a mechanism to mitigate and absorb contagion associated with state-specific financial crises and if possible, should be considered as a primary response function in future cases of sovereign debt crisis.

European Equity Market Contagion: An Empirical Application to Ireland's Sovereign Debt Crisis

This paper examines the time-varying conditional correlations of daily European equity market returns during the Irish sovereign debt crisis. A dynamic conditional correlation (DCC) multivariate GARCH model is used to estimate to what extent the collapse of Irish equity markets and subsequent Troika intervention in Ireland spilled over upon European equity markets during this crisis. During the Irish financial crisis from 2007 to 2010, strong contagion effects are uncovered between Irish equity markets and the eleven investigated European equity markets. The contagion effects are found to ease dramatically in the period after Troika intervention in Irish finances. This result supports bailouts and external financial intervention as a mechanism to mitigate and absorb contagion associated with state-specific financial crises and if possible, should be considered as a primary response function in future cases.

How Have Contracts for Difference Affected Irish Equity Market Volatility?

Contracts for Difference (CFDs) have existed for less than twenty years and the market has grown significantly up to the period before the recent international crises. This paper presents an analysis of how CFDs have affected equity market volatility in Ireland. EGARCH models are used to uncover volatility changes in the periods before and after the introduction of the new trading product in Ireland. We find that CFDs appear to have lowered asset-specific volatility across the majority of equities traded on the Irish Stock Exchange. These findings do not correspond to the expected volatility increase associated with leveraged products that are closely associated with high frequency trading. Our empirical analysis suggests that CFDs are having an alternative volatility reducing effect through the presence of bid and ask price overhangs that are generated through the hedging practices of CFD brokers. A fully worked example of the development of an overhang is provided.

The Profitability of Momentum Trading Strategies in the Irish Equity Market

We examine the profitability of momentum-based trading strategies in the Irish equity market between 1988 and 2007. We investigate a range of trading strategies over alternative backward-looking ranking periods and forward-looking holding horizons as well as for alternative size momentum portfolios. We find that returns to momentum-based strategies are highly non-normally distributed, giving rise to concern about the validity ofinferences based on standard statistical tests of their abnormal performance. We therefore apply a bootstrap procedure to construct nonparametric p-values for the portfolio performance measures. Overall, we find little evidence that momentum-based trading strategies would have yielded an abnormal risk-adjusted return over the period. The Irish equity market appears to be quite efficient in this respect.

Pre- and post-famine indices of Irish equity prices

The market for company stock in Ireland entered its formative period in the mid 1820s with the incorporation of banks and railways. Using data obtained from stockbroker lists, we estimate market capitalisation and construct weighted and unweighted monthly stock market indices for the period 1825–64. Our findings show that the market appears to have been relatively unaffected by the Famine. We suggest that an efficient-market explanation may better explain this finding than a dual-economy explanation. Our findings also show that the stock market increased significantly in value in the post-Famine period. This finding is consistent with an increase in demand for financial assets as well as the rapid commercialisation of the Irish economy.

International Equity Market Integration in a Small Open Economy: Ireland January 1990 - December 2000

We examine the relationship between the Irish, German, UK and US equity markets. Our main finding is that the Irish equity market depends heavily on trading activity in the other markets but not vice versa. Significant return and volatility spillover effects occur in the direction of, but not from the Irish market. We also find that dual listing in the form of ADRs has an important role to play in these spillover effects. Our findings obtain throughout the sample, but are strongest for the period after the ERM crises and before the introduction of the euro.

Are Local or International Influences Responsible for the Pre-Holiday Behavior of Irish Equities?

The pre-holiday behavior of equity price and return indices on the Irish Stock Exchange do not display consistent positive pre-holiday returns. This is contrary to the majority of studies on this area, and the result is found across a number of sectoral indices. The analysis also indicates that these curious results are driven by local, as opposed to international, influences.

Volume and GARCH Effects for Dual-Listed Equities: Evidence From Irish Equities

This paper investigates the volume-volatility relationship for Irish shares, using daily trading volume for 14 of the largest traded Irish stocks, for the period 2 June 2000 through to 28 March 2003. Our results show that a strong contemporaneous volume-volatility correlation exists for Irish stocks. However, ARCH and GARCH effects remain statistically significant for nearly half of Irish stocks, although they are significantly reduced. We also find an asymmetric effect of volume trading on volatility. Trading on the UK stock market has a disproportional effect on volatility of Irish stocks compared to trading on the Irish market. This suggests a potential dual-listed volume-volatility puzzle.

Investigating the determinants of the Wednesday seasonal in Irish Equities

This paper examines the extent, and determinants, of daily seasonality in the Dublin stock exchange over a 10-year period. The Dublin market provides an interesting institutional setting over this period, with changes in settlement regimes and other features that make it a fruitful ground for examination of such seasonality. Although there is a daily seasonal, this pattern is unusual in that it is mid week, contrary to the previous research. Previous research on smaller equity markets has seen slightly different evidence of daily seasonality compared to major markets and this paper confirms the same. The paper then investigates the source of this seasonality—many of the previously adduced theories emerge from the stylised facts of larger markets, and these may not be immediately transferable to smaller markets. This mid-week seasonality appears, on investigation, to differ in its source as between financial and other firms. Financial firms appear to react to macroeconomic news and non-financial to firm specific news, albeit weakly. No support for microstructural hypotheses of daily seasonality is found.

Investigating the Determinants of the Wednesday Seasonal in Irish Equities

This paper examines the extent, and determinants, of daily seasonality in the Dublin stock exchange over a ten-year period. It is found that there is a daily seasonal pattern in the two main indices. However, this seasonal pattern is mid-week, contrary to the previous research. This mid-week seasonality appears, on investigation, to differ in its source as between financial and other firms. Financial firms appear to react to macroeconomic news and non-financial to firm specific news, albeit weakly. No support for microstructural hypotheses of daily seasonality is found.

Are local or international influences responsible for the pre-holiday behaviour of Irish equities?

The pre-holiday behaviour of equity price and return indices on the Irish Stock Exchange do not display consistent positive pre-holiday returns. This is contrary to the majority of studies in this area, and the result is found across a number of sectoral indices. The analysis also indicates that these curious results are driven by local, as opposed to international, influences.

Robust estimates of daily seasonality in the Irish equity market

This article examines, in a robust manner, the question of whether or not an unusual form of daily seasonality existed in the Irish market. Previous studies have indicated that the pattern of such seasonality in Ireland differs from that found elsewhere. Other research indicates that daily seasonality may not exist at all. The findings are that after adjusting for sample size and taking into account the non-normality of the data, the evidence for daily seasonality in the Irish market is very weak. This is confirmed by resampling methods.

Monthly and semi-annual seasonality in the Irish equity market 1934–2000

This paper examines the monthly and semi-annual behaviour of the Irish equity market in the long term. Little has previously been written about the Irish market, and such work as has been undertaken has confined examination to relatively short time spans. The paper finds, over the 1934–2000 period, a strong and persistent monthly effect with a January peak, as well as evidence of April and half-year seasonality.

International equity market integration in a small open economy: Ireland January 1990–December 2000

We examine the relationship between the Irish, German, UK and U.S. equity markets. Our main finding is that the Irish equity market depends heavily on trading activity in the other markets but not vice versa. Significant return and volatility spillover effects occur in the direction of, but not from, the Irish market. We also find that dual listing in the form of American Depositary Receipts (ADRs) has an important role to play in these spillover effects. Our findings obtain throughout the sample, but are strongest for the period after the ERM crises and before the introduction of the euro.

Market direction and moment seasonality: evidence from Irish equities

The first four moments of four indices of equity returns produced by the Irish Stock Exchange are examined across different market directions. Using standard F, Kruskal-Wallis and Levene tests daily seasonality is confirmed in all, although in a pattern different to that found elsewhere. In particular, there appears to be a Wednesday effect in mean returns and, counter to evidence elsewhere, daily seasonality appears stronger in rising than falling markets. In addition, this note applies a method introduced by Tang (Journal of Economics and Business, 21(1), 1997) in finding a daily seasonal in skewness and kurtosis.

How Robust is the Daily Seasonal in Irish Equities?

This paper examines, in a statistically robust manner, the question of whether daily seasonality exists in the Irish market. The paper starts with a brief literature review, and a rather longer discussion of the particular methodological challenges such investigations pose. These challenges are, it is hoped, faced and, partially at least, overcome in the remainder of the paper. The findings are that after adjusting for sample size and taking into account the non-normality of the data, the evidence for daily seasonality in the Irish market is much reduced, although not eliminated. The paper goes beyond previous work in its analysis of the second and higher moments, again employing robust and statistically appropriate methods. Evidence is provided of daily seasonality in the second and higher moments that mirror only partially the evidence in the lower moment.

Monthly and Semi-annual Seasonality in the Irish Equity Market 1934-2000

In a working paper, Jacobsen and Bouman (2002) claim that the old stock market saying of sell in May and go away but buy back on St Leger Day produces statistically significant profit when tested on a large database of equity market returns over the last decade, three decades, and even longer periods. A recently published paper, Sullivan, Timmerman and White (2002), dismisses the claim of statistical significance of this or any other calendar-based trading rule, attributing the reported test results to a large data-mining exercise of the academic and financial communities. In this paper we provide an out-of-sample test on the Bouman & Jacobsen strategy and conclude that the reported results are indeed statistically significant. In doing so we re-introduce a reliable index of capital returns on the Irish equity market maintained contemporaneously by the Irish Central Statistical Office (and its forerunner) since January 1934 and which, in its early decades, displays markedly different statistical properties to both the US and UK equity markets of that time and equity market returns generally in recent decades. As a subsidiary exercise we reconsider the extensive literature on monthly seasonality in equity markets with this novel index and contend that the abnormally high returns, frequently reported in January and April and occasionally in February and other months, are perhaps more accurately and certainly more parsimoniously ascribed to the half-year effect captured in the old stock market adage. The paper also discusses the extent of these calendar effects in the higher moments of the Irish index, and discusses a trading rule derived from same.

Exchange Control Deregulation and Relationships Between UK and Irish Equity Markets

This research examines causal relationships between the United Kingdom stock market and the smaller Irish market over three periods coinciding with the reduction and removal of currency controls on Irish investors. As a major world market. the UK is the most likely alternative for Irish investors. UK index futures are included because of growing evidence that futures markets impact on their respective-cash markets. After controls are removed, there is evidence that the UK equities market impacts on Irish shares. There is also evidence that Ulcfutures impact on Irish equities. A separate investigation offinancials sectors in UK and Irish equity markets also confirms the establishment of a causal relationship when exchange controls are removed.

Market Direction and Moment Seasonality: Evidence from Irish Equities

The first four moments of four indices of equity returns produced by the Irish Stock Exchange are examined across different market directions. Using standard F, K-W and Levene tests daily seasonality is confirmed in all, although in a pattern different to that found elsewhere. In particular, there appears to be a Wednesday effect in mean returns and, counter to evidence elsewhere, daily seasonality appears stronger in rising than falling markets. In addition, this note applies a method introduced by Tang (1997) in finding a daily seasonal in skewness and kurtosis.

An examination of return and volatility patterns on the Irish equity market

This study examines the pattern of returns and volatility on Irish equity markets, over a period when the markets were deregulated. GARCH and GARCH-IN-MEAN models are applied to data from three study periods. Volatility spillovers from the London stock market are considered, providing a test for evidence of a change in the degree of this influence. Within sample results show that GARCH models do provide a useful description of Irish equity returns. Furthermore, the inclusion of external volatility improves the model fit. There is no evidence that deregulation coincides with an alteration in the impact of external volatility. Forecast results indicate some evidence that the inclusion of external volatility spillovers does improve the forecast accuracy of GARCH models. Tests indicate that a GARCH-IN-MEAN specification does not suit Irish equity data.