House Prices and Economic Risks - Are Irish Households Rational?

This study analyzes the evolution of house prices in Ireland and investigates the question of whether Irish households are overexposed to certain economic risks rendering the decision to buy a house too risky and hence irrational. We use a simple theoretical framework to demonstrate the investment options of a typical household and derive the risk factors associated with the purchase of a house with respect to other types of investment. Irish households hold the majority of their investments in property, specifically in their own houses. The empirical results illustrate that this wealth is exposed to inflation, interest rate changes and the business cycle. This exposure, while not problematic in times of low interest rates, moderate inflation and economic expansion, amplifies the risk to the value of households’ investments if inflation increases, interest rates rise or the economy is in recession. We argue that the adoption of the euro has increased this risk because interest rates are exogenous to the Irish economy which could lead to a situation of deteriorating economic conditions and rising interest rates. Our findings indicate that Irish households potentially underestimate the risk of buying a house. Viewing the purchase of a house as a risky investment could help reduce private debt in the future.

The Benefits of Financial Markets: A Case Study of European Football Clubs

This study analyses the performance of European football clubs which undergo an initial public offering (IPO). We use a unique time-series and cross-section dataset consisting of domestic and international performance data to develop an event study to investigate the effects of a football club’s on-field performance before and after the IPO. The study follows from the observation that, as financial markets are expected to exhibit a positive influence on the economy as a whole, football clubs who access these markets should benefit as well. However, the conclusions of our study are similar to those in the corporate finance literature, where firms who undertake an IPO find their stock price underperforming similar firms in the medium term. Using our metric, football clubs have a diminished domestic and international performance after the stock market listing.