Jón Árnason's Íslenzkar Pjóþsögur og Aefintýri (The Folktales and Fairy Tales of Iceland).
Originally published 1862-4.
Translated by Jacqueline Simpson. University of California Press, 1972.
he Water Horse is named either Nykur or Nennir, and lives in rivers or lakes
or even the open sea. He looks just like a horse, usually grey but sometimes
a black one, but all his hoofs are turned back to front and the tufts on his
pasterns point backwards. However, he is in no way limited to this form; it
is characteristic of him to change suddenly into various shapes, just as he
chooses.In winter when cracks appear in the ice and cause loud booming noises, men say that the Nykur is neighing. He begets foals like other stallions do, but always in the water, though it has sometimes happened that he has got an ordinary mare with foal. It is characteristic of all horses descended from a Nykur that they lie down whenever they are ridden or led through water that reaches to their bellies, and this is a trait they inherit from the Nykur.
A Nykur will often appear on land near rivers or lakes that are difficult to cross; he seems quiet enough at such times, and tempts people to ride across on him, but as soon as they are up on his back he rushes wildly into the water, lies down flat in it, and drags his rider down too. The Nykur cannot bear to hear his own name name, or any word that sounds at all like it, and if he does he shies violently and gallops into the water.
All over Iceland people believed in the Nykur, so in almost every district there are stories of one living in this or that river or lake, especially those with strong currents. In the island of Grimsey, off the north coast, people believed that a Nykur lived in the sea and neighed whenever he knew that the islanders had gone to fetch a cow from the mainland; the cows went mad at his neighing, flung themselves in the sea, and so were drowned. Not before the middle of the nineteenth century did men of Grimsey dare keep a cow on their island.
Once, a shepherd girl was searching for her sheep; she had walked a long way and was very tired. Then she sees a grey horse, and is very pleased; she puts her garter on him as a bridle, lays her apron across his back, leads him to a tussock, and prepares to mount him. But just as she is about to mount, she says: "I don't think I fancy getting on his back! Aren't I a ninny!" Then the horse shied violently, dashed into a lake nearby, and vanished. Then the girl saw what kind of creature it had been--it was a Water Horse. It is characteristic of a Water Horse that he must never hear his own name, or he returns into the water where he lives; he has two names, Nykur and Nennir, and so he went off off as soon as the girl said `ninny'. The same thing happens if a Nykur hears the word 'Devil' spoken.
Once, three or four children were playing. Not for from their farm was a broad lake with smooth gravel banks, and the children were on the banks by the water. There they saw a grey horse and went to have a look at it. Then one of the children climbs onto its back, and the others too, one after the other, till only the eldest was left. They urged him to come too, saying this old pack-horse had plenty room enough on his long back, even if they all got on at once. But the child refused to get on, and the others called him a ninny. Then the horse shied, and hurtled out into the lake with all the other children on his back. The one who had stayed behind went home and told the tale, and people knew that this must have been the Nykur; he was never seen again, nor the children either.
Translator's note: In order to convey the pun, I have added the word `ninny' to the crucial remarks; the original turns on the verb nenna `to feel like doing something'--eg nenni ekki a bak, `I don't feel like getting on its back'.