Paul Ryan

Profitability of Price Momentum Strategies: The DAX 100 Evidence

Price momentum strategies on the DAX 100 are profitable and readily exploitable, even with realistic transaction costs, by institutional investors who tend to concentrate portfolio weights in large-capitalization stocks. This profitability is not explained by failure to adjust for systematic risk, delayed reaction to a common factor, or serial correlation in common factor realizations. The results are consistent with underreaction to firm- or industry-related news, and there is no evidence of price reversals in the three years following portfolio formation.

Analysts and Non-Public Information

The author tests the nature of the sell-side analysts information advantage, particularly the analysts ability to act as a conduit for the flow of nonpublic information to the market. He examines in addition whether the nature of information not in the public domain differs in nature from publicly available information.

Getting It Right or Getting It Cursed: Auction Prices in a Residential Real Estate Bubble

This is the first study to test for a winner’s curse in a bubble market. Our hand-collected sample comprises the entire sequence of bids and the experience of the winning bidder at Irish residential real estate auctions, prior to the collapse of the bubble. Portfolios of practitioner-selected self-similar properties and a hedonic pricing model facilitate benchmark property price estimation. We show neither real estate investors nor owner occupiers shade auction bids to avoid the winner’s curse. Winning real estate investors, however, pay more for properties. Thus, real estate investors ride the wave of a property bubble and potentially exacerbate it.

Price Anchors and Residential Real Estate Bubbles

This paper is the first study exploring the impact of auction guide (list) prices on auction outcomes in a real estate bubble. Real estate agents through setting auction guide prices may have a role in influencing auction outcomes and potentially inflating the bubble if these guide prices had a part in generating final auction prices which were high relative to fundamentals. We find that winning bidders anchored on the advertised auction guide price consistent with anchoring and insufficient adjustment. However, interestingly, we find evidence consistent with real estate agents systematically setting low guide prices relative to fundamentals suggesting that the actions of the agents may have in fact dampened the effect of the bubble rather than amplifying it.

Behavioural Biases in the Acquisition of Multiple Properties by Owner Occupier Investors during the Irish Residential Real Estate Bubble

Ireland’s economic crisis has its roots in a housing bubble that collapsed in 2007. This paper examines the behaviour of Irish people who purchased one or more residential properties for investment purposes prior to the global financial crisis in 2007.During the period that constituted Ireland’s residential property bubble, many people were not satisfied with acquiring a house solely as a dwelling and doubled their bets by acquiring other properties for investment purposes. In many cases the prices paid for these properties were uneconomical vis-a-vis the rental income stream associated with them. In the case of overseas properties many investors made purchase decisions without even gathering the most basic information on the suitability of these properties as potential investments. We consider the behavioural and psychological factors that drove Irish residents in the acquisition of one or more residential property for investment both in Ireland and within the continent of Europe, North America and South Africa.The biases we examined were, Representativeness, Overconfidence and Availability. We find evidence that due to the representativeness heuristic, investors may have been over-extrapolating the past growth into the future. In addition, lenders also over-extrapolated the increase in house prices and made credit easily available, largely financed by deposits from financial institutions in other euro area countries. People over estimated the precision of their forecasts, when for example, in an effort to estimate an asset’s value, they become overconfident about the usefulness of this information gathered for this purpose. For example, groupthink and media cheerleading whereby only favourable information and positive news in relation to real estate values was reported in the media despite a series of international reports, including those from the OECD and the IMF, warning that property values were too high based on economic fundamentals. Such asymmetric media reporting may have exacerbated investors overconfidence leading them to see property as a one way bet which in turn leads them to push the price of the asset higher with upward price movements becoming a self-fulfilling prophecy. (Daniel, Hirshleifer, Subrahmanyam, 1998). In terms of Availability, the Irish media were almost without exception cheerleaders for the booming property market, only dampening their enthusiasm months after prices had started to decline in late 2007.