By Stephen McKinley
Two Irish economists have offered what they see as a simple strategy for investors to invest successfully on the Irish Stock Exchange.
University College Cork academics Dr. Liam Gallagher and Cormac O’Keeffe presented a paper at the Irish Economic Association Annual Conference in Mullingar last weekend, called “The Winner-Loser Anomaly: Robust Evidence from Irish Shares.”
The Irish Examiner reported that two studied 10 years of data and found Irish shares behave in a way that allows an investor to exploit some systematic behavior.
“Shares do well for two years followed by poor performance in the following year,” Gallagher and O’Keefe noted.
They deducted two basic rules, which they offered to investors as a successful strategy: first, “buy shares that did well over the last year, but did poorly the preceding year.” Second, “do not hold onto shares that have done well over the last two years.”
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The economists based their study on 16 companies for the period 1988-2000: AIB, Bank of Ireland, CRH, Kerry Group, Smurfit, Independent Newspapers, Anglo Irish Bank, Green Property, Waterford Wedgewood, Jurys, Fyffes, Heitons, Readymix, Abbey, Arnotts and Ryan Hotels.
“The results suggest that there is a significant degree of predictability in Irish stock market returns, with positive autocorrelation at the one-year horizon, negative at the two-year horizon and positive again at the three-year horizon,” the economists said.