Economics

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Stocks and bonds: eggs in the same or different baskets. A cointegration analysis
(Centre for Investment Research, University College Cork, 2002-08) O'Sullivan, Niall
The Johansen cointegration testing and estimation procedure is applied to examine the relationships among the stock markets, government bond markets and credit bond markets of the US, UK, Europe and Japan over the period 1985M1:2002M4. Asset class relationships are examined with returns denominated in dollars, sterling, euro and yen to determine whether long run diversification gains were achievable by international investors with these as base currencies. Cointegrating relations among currency hedged returns are also investigated. Cointegration findings, and by inference long run diversification opportunities, are found to be highly sensitive to the choice of currency in which returns are denominated and to whether currency risk is hedged, revealing the important role of exchange rates in international portfolio diversification.
Does attendance affect grade? An analysis of first year economics students in Ireland
(Economic & Social Research Institute, 2003-01) Kirby, Ann; McElroy, Brendan; University College Cork
This paper examines the relationship between attendance and grade, controlling for other factors, in first year economics courses in University College Cork. Determinants of both class attendance and grade are specified and estimated. We find that attendance is low, at least by comparison with US evidence. Hours worked and travel time are among the factors affecting class attendance. Class attendance, and especially tutorial attendance has a positive and diminishing marginal effect on grade, while hours worked in a part-time job have a significant negative effect on grade.
The roles of interaction and proximity for innovation by Irish high-technology businesses: policy implications
(Economic and Social Research Institute, 2005-06) Jordan, Declan; O'Leary, Eoin
This paper presents new survey-based evidence on the increasingly topical question of what drives innovation in Irish high-technology businesses. The extraordinary performance of the Irish economy since the 1990s has been inextricably linked to highly successful foreign-owned businesses, in sectors such as pharmaceuticals, electronics and computers (Gallagher, Doyle and O’Leary, 2002). It might be expected that innovation in these multi-nationals is largely sourced in other group companies located abroad. It is therefore pertinent to ask, in the context of the recent policy recommendations of the Enterprise Strategy Group (ESG) (2004), the extent to which these Irish subsidiaries source innovation in Ireland. This may be through their own research and development efforts and/or through interaction for the purposes of promoting innovation with other locally or regionally based businesses, Third Level Colleges and innovation support agencies, such as IDA Ireland and Enterprise Ireland. Moreover, it may be equally important to ask, in the context of the long-standing emphasis on improved performance of indigenous industry, whether indigenous high-technology businesses interact locally or regionally in order to promote innovation. Beginning with Culliton (1992) and continuing to the present, through, for example, Forfás (2004a) and the ESG (2004), Irish industrial policy has consistently promoted and supported clusters and networks. In recent years substantial State funding has also been devoted to research and development. The National Development Plan 2000-2006 (2000) allocated €2.5 billion and the government established Science Foundation Ireland. The ESG (2004) has proposed further State investment in research and development as well as new initiatives including building enterprise capability, funding collaboration between industry and Irish Third Level Colleges, introducing tax credits for research and development. There is a consensus in the Irish, and indeed the European, policy community that developing innovation through clusters and networks will be important for future Irish and European competitiveness (Bergin et al., 2003; Forfás, 2003; National Competitiveness Council, 2003; European Commission, 2003). By presenting survey based evidence on the sources of innovation in Irish high-technology industry, this paper makes an important contribution to this debate. It begins by outlining the design of the survey instrument and then presents the results. The policy implications of the results are then discussed.
Determinants of bed net use in The Gambia: implications for malaria control
(American Society of Tropical Medicine and Hygiene, 2007-05) Wiseman, V.; Scott, A.; McElroy, Brendan; Conteh, L.; Stevens, W.; Bill and Melinda Gates Foundation; Medical Research Council, The Gambia
Malaria is still one of the biggest health threats in the developing world, with an estimated 300 million episodes per year and one million deaths, most of which are in sub-Saharan Africa. Although the efficacy and cost-effectiveness of treated bed nets has been widely reported, little is known about the range, strength, or interaction between different factors that influence their demand at the household level. This study modeled the determinants of bed net ownership as well as the factors that influence the number of bed nets purchased. Data was collected from 1,700 randomly selected households in the Farafenni region of The Gambia. Interviews were also held with 129 community spokespersons to explore the extent to which community level factors such as the quality of roads and access to market centers also influence demand for bed nets. The results of each model of demand and their policy implications are discussed.
Innovation in Ireland's 'high-technology' businesses: the roles of interaction and proximity
(University College Cork, 2007-08) Jordan, Declan; O'Leary, Eoin; Enterprise Ireland
This thesis explores the drivers of innovation in Irish high-technology businesses and estimates, in particular, the relative importance of interaction with external businesses and other organisations as a source of knowledge for innovation at the business-level. The thesis also examines the extent to which interaction for innovation in these businesses occurs on a local or regional basis. The study uses original survey data of 184 businesses in the Chemical and Pharmaceutical, Information and Communications Technology and Engineering and Electronic Devices sectors. The study considers both product and process innovation at the level of the business and develops new measures of innovation output. For the first time in an Irish study, the incidence and frequency of interaction is measured for each of a range of agents, other group companies, suppliers, customers, competitors, academic-based researchers and innovation-supporting agencies. The geographic proximity between the business and each of the most important of each of each category of agent is measured using average one-way driving distance, which is the first time such a measure has been used in an Irish study of innovation. Utilising econometric estimation techniques, it is found that interaction with customers, suppliers and innovation-supporting agencies is positively associated with innovation in Irish high-technology businesses. Surprisingly, however, interaction with academic-based researchers is found to have a negative effect on innovation output at the business-level. While interaction generally emerges as a positive influence on business innovation, there is little evidence that this occurs at a local or regional level. Furthermore, there is little support for the presence of localisation economies for high-technology sectors, though some tentative evidence of urbanisation economies. This has important implications for Irish regional, enterprise and innovation policy, which has emphasised the development of clusters of internationally competitive businesses. The thesis brings into question the suitability of a cluster-driven network based approach to business development and competitiveness in an Irish context.
Momentum profits and time-varying unsystematic risk
(Elsevier, 2008-04) Li, Xiafei; Miffre, Joëlle; Brooks, Chris; O'Sullivan, Niall
This study assesses whether the widely documented momentum profits can be attributed to time-varying risk as described by a GJR-GARCH(1,1)-M model. We reveal that momentum profits are a compensation for time-varying unsystematic risks, which are common to the winner and loser stocks but affect the former more than the latter. In addition, we find that, perhaps because losers have a higher propensity than winners to disclose bad news, negative return shocks increase their volatility more than they increase those of the winners. The volatility of the losers is also found to respond to news more slowly, but eventually to a greater extent, than that of the winners.
Investment funds: What next?
(Quantitative and Qualitative Analysis in Social Sciences, 2008-06) Cuthbertson, Keith; Nitzsche, Dirk; O'Sullivan, Niall
Investment funds provide a low cost method of sharing in the rewards from capitalism. Recently “alternative investments” such as hedge funds have grown rapidly and the trading strategies open to hedge funds are now becoming available to mutual funds and even to ordinary retail investors. In this paper we analyze problems in assessing fund performance and the prospects for investment fund sectors. Choosing genuine outperformers among top funds requires a careful assessment of non-normality, order statistics and the possibility of false discoveries. The risk adjusted performance of the average hedge fund over the last 10-15 is actually not that impressive, although the “top” funds do appear to have statistically significant positive alphas.
UK mutual fund performance: Skill or luck?
(Elsevier, 2008-06) Cuthbertson, Keith; Nitzsche, Dirk; O'Sullivan, Niall
Using a comprehensive data set on (surviving and non-surviving) UK equity mutual funds, we use a cross-section bootstrap methodology to distinguish between ‘skill’ and ‘luck’ for individual funds. This methodology allows for non-normality in the idiosyncratic risk of the funds — a major issue when considering those funds which appear to be either very good or very bad performers, since these are the funds which investors are primarily interested in identifying. Our study points to the existence of stock picking ability among a relatively small number of top performing UK equity mutual funds (i.e. performance which is not solely due to good luck). At the negative end of the performance scale, our analysis strongly rejects the hypothesis that most poor performing funds are merely unlucky. Most of these funds demonstrate ‘bad skill’. Recursive estimation and Kalman ‘smoothed’ coefficients indicate temporal stability in the ex-post performance alpha's of winner and loser portfolios. We also find performance persistence amongst loser but not amongst winner funds.
Is Irish innovation policy working? Evidence from high-technology businesses
(Statistical and Social Inquiry Society of Ireland, 2008-10) Jordan, Declan; O'Leary, Eoin; Enterprise Ireland
In the last decade Irish innovation policy has been focused on Higher Education Institutions (HEIs). This paper explores the effects of HEIs, in the context of interaction with other interaction agents, on the innovation output of Irish high-technology businesses. Based on a survey of 184 businesses in the Chemical and Pharmaceutical, Information and Communications Technology and Engineering and Electronic Devices sectors, the paper estimates the importance of in-house R&D activity and external interaction with HEIs, support agencies and other businesses for product and process innovation. A key finding is that the greater the frequency of direct interaction with HEIs the lower the probability of both product and process innovation in these businesses. There is some evidence of a positive indirect HEI effect, through complementarities of interactions with suppliers and support agencies. However, while external interaction is important for innovation output, there is little evidence that geographical proximity matters. These findings have important implications for Irish innovation policy. Last year’s Strategy for Science, Technology and Innovation: 2006 to 2013 committed an additional €1.88 billion for research and commercialisation programmes in HEIs. The econometric results presented suggest that this substantial public investment in HEIs may have a disappointing, and perhaps even a negative, effect on the innovation output of Irish business, thus undermining future Irish prosperity. In addition, the absence of evidence supporting the existence of Irish clusters and networks for innovation suggests that policymakers long-standing support for these have been misguided. The paper concludes by advocating that innovation is a business rather than a technological phenomenon and argues for a changed role for HEIs to one of responding to innovative businesses.
The effects of geography on innovation in small to medium sized enterprises in the South-East and South-West of Ireland
(School of Economics, University College Cork, 2009-04) Doran, Justin; Jordan, Declan; O'Leary, Eoin
This paper analyses the effects of geography on innovation by small and medium sized enterprises in the South-West and South-East regions of Ireland. Using an augmented innovation production function it estimates, both directly and indirectly, the effects of interaction with geographically proximate external agents and agglomeration economies on product and process innovation in these enterprises. The findings question the premise that geography matters for innovation in the Irish case. There is little evidence that local/regional interaction is more important for innovation and the close availability of a skilled labour pool and a range of urbanization indicators have no effect.
Malaria prevention in north-eastern Tanzania: patterns of expenditure and determinants of demand at the household level.
(Biomed Central, 2009-05-07) McElroy, Brendan; Wiseman, V.; Matovu, F.; Mwengee, W.; Bill and Melinda Gates Foundation
Objective. This study aims to provide a better understanding of the amounts spent on different malaria prevention products and the determinants of these expenditures. Methods. 1,601 households were interviewed about their expenditure on malaria mosquito nets in the past five years, net re-treatments in the past six months and other expenditures prevention in the past two weeks. Simple random sampling was used to select villages and streets while convenience sampling was used to select households. Expenditure was compared across bed nets, aerosols, coils, indoor spraying, using smoke, drinking herbs and cleaning outside environment. Findings. 68% of households owned at least one bed net and 27% had treated their nets in the past six months. 29% were unable to afford a net. Every fortnight, households spent an average of US $0.18 on nets and their treatment, constituting about 47% of total prevention expenditure. Sprays, repellents and coils made up 50% of total fortnightly expenditure (US$0.21). Factors positively related to expenditure were household wealth, years of education of household head, household head being married and rainy season. Poor quality roads and living in a rural area had a negative impact on expenditure. Conclusion. Expenditure on bed nets and on alternative malaria prevention products was comparable. Poor households living in rural areas spend significantly less on all forms of malaria prevention compared to their richer counterparts. Breaking the cycle between malaria and poverty is one of the biggest challenges facing malaria control programmes in Africa.
Predictability revisited: UK equity returns, 1965-2007
(Blackhall Publishing, 2010) Bowen, David A.; Hutchinson, Mark C.; O'Sullivan, Niall; Irish Research Council for Humanities and Social Sciences
This study tests a large sample of UK equity returns from 1965 to 2007 for predictability. Returns are tested using the Lo and MacKinlay (1988) variance ratio test and the Chow and Denning (1993) multiple variance ratio tests. Overall, the results show strong signs of predictability. There is a size effect, in which small equities appear more predictable in the first half of the sample (1965–1985), and mid- to large-size equities appear more predictable in the second half of the sample (1986–2007).
The market timing ability of UK mutual funds
(Blackwell Publishing Ltd., 2010-01) Cuthbertson, Keith; Nitzsche, Dirk; O'Sullivan, Niall
We apply a recent nonparametric methodology to test the market timing skills of UK equity and balanced mutual funds. The methodology has a number of advantages over the widely used regression based tests of Treynor-Mazuy (1966) and Henriksson-Merton (1981). We find a relatively small number of funds (around 1%) demonstrate positive market timing ability at a 5% significance level while around 19% of funds exhibit negative timing and on average funds miss-time the market. However, controlling for publicly available information we find very little evidence of market timing ability based on private timing signals. In terms of investment styles, there are a small number of successful positive market timers amongst Equity Income and ‘All Company’ funds but not among either Small Stock funds or Balanced funds, although a few small stock funds are found to time a small stock index rather than a broad market index.
An empirical examination of risk equalisation in a regulated community rated health insurance market
(University College Cork, 2010-04) Turner, Brian D.; Shinnick, Edward
Despite universal access entitlements to the public healthcare system in Ireland, over half the population is covered by voluntary private health insurance. The market operates on the basis of community rating, open enrolment and lifetime cover. A set of minimum benefits also exists, and two risk equalisation schemes have been put in place but neither was implemented. These schemes have proved highly controversial. To date, the debate has primarily consisted of qualitative arguments. This study adds a quantitative element by analysing a number of pertinent issues. A model of a community rated insurance market is developed, which shows that community rating can only be maintained in a competitive market if all insurers in the market have the same risk profile as the market overall. This has relevance to the Irish market in the aftermath of a Supreme Court decision to set aside risk equalisation. Two reasons why insurers’ risk profiles might differ are adverse selection and risk selection. Evidence is found of the existence of both forms of selection in the Irish market. A move from single rate community rating to lifetime community rating in Australia had significant consequences for take-up rates and the age profile of the insured population. A similar move has been proposed in Ireland. It is found that, although this might improve the stability of community rating in the short term, it would not negate the need for risk equalisation. If community rating were to collapse then risk rating might result. A comparison of the Irish, Australian and UK health insurance markets suggests that community rating encourages higher take-up among older consumers than risk rating. Analysis of Irish hospital discharge figures suggests that this yields significant savings for the Irish public healthcare system. This thesis has implications for government policy towards private health insurance in Ireland.
Mutual fund performance: measurement and evidence
(Blackwell Publishing Ltd, 2010-05) Cuthbertson, Keith; Nitzsche, Dirk; O'Sullivan, Niall
The paper provides a critical review of empirical findings on the performance of mutual funds, mainly for the US and UK. Ex-post, there are around 0-5% of top performing UK and US equity mutual funds with truly positive-alpha performance (after fees) and around 20% of funds that have truly poor alpha performance, with about 75% of active funds which are effectively zero-alpha funds. Key drivers of relative performance are, load fees, expenses and turnover. There is little evidence of successful market timing. Evidence suggests past winner funds persist, when rebalancing is frequent (i.e., less than one year) and when using sophisticated sorting rules (e.g., Bayesian approaches) - but transactions costs (load and advisory fees) imply that economic gains to investors from winner funds may be marginal. The US evidence clearly supports the view that past loser funds remain losers. Broadly speaking results for bond mutual funds are similar to those for equity funds. Sensible advice for most investors would be to hold low cost index funds and avoid holding past ‘active’ loser funds. Only sophisticated investors should pursue an active ex-ante investment strategy of trying to pick winners - and then with much caution.
The profitability of momentum trading strategies in the Irish equity market
(Blackhall Publishing, 2010-07) O'Sullivan, Fionnghuala; O'Sullivan, Niall
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 of inferences 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.
Asset price effects arising from sports results and investor mood: the case of a homogenous fan base area
(Dunker & Humblot, 2011) Gallagher, Robert; O'Sullivan, Niall; Irish Research Council for Humanities and Social Sciences
This paper contributes to the behavioural finance literature that examines the asset pricing impact of mood altering events such as sports results, sunshine levels, daylight hours, public holidays, temperature etc. Specifically, we investigate whether variations in investor mood arising from wins and losses in major sporting events have an impact on stock market returns. We examine the case of Ireland. Ireland is an interesting case because its people are passionate about sport, the domestic population is relatively homogenous (rather than divided) in terms of support for Irish competitors in international competition and domestic investors comprise a large proportion of owners of Irish stocks—all factors which suggest that if a mood effect exists it should show up in this case. Generally, we do not find a strong link between sport results and stock market returns. Initial results do suggest that in events of particularly high importance, such as the knock-out stages of major competitions, losses are associated with negative returns. However, on controlling for indirect economic effects of sporting wins and losses such as on tourism and travel we find the mood effect is no longer significant.
External interaction, innovation and productivity: an application of the innovation value chain to Ireland
(Taylor & Francis Ltd., 2011) Doran, Justin; O'Leary, Eoin
This paper analyses the innovation value chain for the Irish Community Innovation Survey (CIS): 2004-2006. In estimating innovation and productivity simultaneously, it extends the CDM methodology to include a range of external knowledge sources. Feedback effects are found to be vital, with more productive firms being more innovative and vice versa. External knowledge sources affect the innovation decision but not innovation performance, thus pointing to the primacy of internal processes for the crucial task of knowledge exploitation. There is evidence of dichotomous knowledge sourcing in Ireland, with some firms sourcing from market and others, especially high-technology businesses, from non-market agents.
The role of external interaction for innovation in Irish high-technology businesses
(IP Publishing Ltd., 2011-11) Jordan, Declan; O'Leary, Eoin
There is growing empirical evidence that external interaction is an important source of knowledge for business innovation. This paper contributes to the innovation literature by using new measures of interaction to explore the relative importance of external interaction for innovation in Irish high-technology businesses. Based on survey data, the paper finds that external interaction increases the probability of product and process innovation, but the effect is inconsistent across all external interaction agents. Interaction along the supply chain has a positive effect on innovation, and interaction with competitors has an insignificant effect on innovation output. Notably, the paper finds that interaction with higher education institutions has a negative effect on the probability of product and process innovation.
Regulation and firm perception, eco-innovation and firm performance
(Emerald Group Publishing Limited, 2012) Doran, Justin; Ryan, Geraldine
Purpose - Recent reports argue that eco-innovation is the key to realising growth. This paper examines the factors which drive eco-innovation and tests if eco-innovating firms perform better than non-eco-innovating firms. We provide insights into the role government regulation can play in directing and stimulating eco-innovation.Design/methodology/approach - The approach utilised by this paper is empirical in nature. Using a sample of 2,181 firms, gathered as part of the Irish Community Survey 2006-2008, we estimate a modified innovation production function in order to assess the impact of regulation, consumer expectations and voluntary agreements on the performance of ecoinnovation, subsequently a knowledge augmented production function is estimated to assess the impact of eco-innovation on firm performance.Findings - Our findings suggest that regulation and customer perception can explain a firm s decision to engage in eco-innovation. Eco-innovation is also found to be more important than non-eco-innovation in determining firm performance.Research limitations/implications - Due to the limited availability of accounting data thispaper uses turnover per worker as the measure of firm performance. As a result, it is not possible to assess the impact of eco-innovation on firm costs.Social implications - The finding that regulation drives eco-innovation, and that there is no trade-off between eco-innovation and higher profit margins for innovating firms, suggests that regulators and policy makers can stimulate growth and create a greener society.Originality/value - This paper provides an empirical analysis of the Porter and van derLinde s (1995) theory of environmental regulation and firm performance using novel realworld data from over 2,000 Irish businesses.

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