Risk and Trading on London’s Alternative Investment Market: The Stock Market for Smaller and Growing Companies

121 Pages·2015·0.88 MB·English

by  John Board

Risk and Trading on London’s Alternative
Investment Market
DOI: 10.1057/9781137361301.0001
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DOI: 10.1057/9781137361301.0001
Risk and Trading on
London’s Alternative
Investment Market: The
Stock Market for Smaller
and Growing Companies
John Board
ICMA Centre, Henley Business School, University of Reading, UK
Alfonso Dufour
ICMA Centre, Henley Business School, University of Reading, UK
Yusuf Hartavi
ICMA Centre, Henley Business School, University of Reading, UK
Charles Sutcliffe
ICMA Centre, Henley Business School, University of Reading, UK
and
Stephen Wells
Visiting Fellow, ICMA Centre, Henley Business School, University
of Reading, UK
DOI: 10.1057/9781137361301.0001
© John Board, Alfonso Dufour, Yusuf Hartavi, Charles Sutcliff e and
Stephen Wells 2015
Softcover reprint of the hardcover 1st edition 2013
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No portion of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency,
Saff ron House, 6–10 Kirby Street, London EC1N 8TS.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
Th e authors have asserted their rights to be identifi ed as the authors of this work
in accordance with the Copyright, Designs and Patents Act 1988.
First published 2015 by
PALGRAVE MACMILLAN
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registered in England, company number 785998, of Houndmills, Basingstoke,
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www.palgrave.com/pivot
doi: 10.1057/9781137361301
Contents
List of Figures vi
List of Tables vii
Acknowledgements ix
1 Introduction 1
2 Activities 3
3 Interviews 5
4 Literature Review 7
5 Empirical Analysis 31
6 Preliminary Data Analysis 41
7 Volatility Estimation 49
8 Basic Analysis of Relative Volatility 54
9 Relative Risk Allowing for Size,
Age or Liquidity 58
10 Regression Analyses with Multiple
Variables 64
11 Market-Switching Stocks 73
12 GARCH Analysis of Switchers 83
13 Conclusions 87
Appendix: Mean of Dummy Variables for all
Estimated Regression Models 93
Bibliography 96
Index 109
DOI: 10.1057/9781137361301.0001 v
List of Figures
5.1 Number of listed stocks 35
5.2 Market leavers 40
6.1 Market capitalization bands 42
6.2 Comparative industry groupings 43
6.3 Companies by sub-sectors 45
6.4 Age distribution for AIM and Main
Market stocks 46
6.5 Relative ages of AIM and Main Market stocks 47
6.6 Trading frequencies AIM vs. Main Market 47
8.1 Relative volatilities of AIM and Main
Market stocks 55
8.2 Relative volatilities of AIM and Main
Market stocks based on trades 56
9.1 Relative volatility by market capitalization 59
9.2 Relative volatility by industry 60
9.3 Relative volatility by firm age 61
9.4 Volatility by trading frequency 62
9.5 Average of risks for AIM and Main Market
stocks 63
11.1 Capitalization of switching stocks 76
11.2 Relative risk analysis for switchers 76
11.3 Relative post- to pre-switch volatilities 77
11.4 Relative risk analysis controlling for market risk 79
11.5 Relative volatility analysis for switchers,
AIM to Main Market 80
11.6 Relative volatility analysis for switchers,
Main Market to AIM 81
12.1 FTSE 100 log returns over the entire
sample period 85
vi DOI: 10.1057/9781137361301.0002
List of Tables
4.1 Number of companies listed on AIM and
their market capitalization 11
4.2 AIM market capitalization in April 2014,
by sector 12
4.3 Details of some of the larger junior exchanges
in 2011 12
4.4 Small capitalization exchanges for which
there is an empirical study 13
4.5 Studies of IPOs on small capitalization
markets 15
4.6 Studies on IPO lock-ups on small
capitalization markets 17
4.7 Studies on IPO values on small capitalization
markets 17
4.8 Studies of the change in listing on systematic
risk 22
4.9 Reasons for switching between AIM and the
Main Market (1996–2009) 23
4.10 Reasons for switching between AIM and the
Main Market (1996–2011) 23
4.11 Annualized standard deviation of daily
returns 25
5.1 Eligible sample of stocks 33
5.2 Data cleanse 36
5.3 Corporate action adjustments 37
5.4 Number of companies leaving AIM 38
6.1 Mid-cap band representation 43
10.1 Possible risk factors for riskiness of AIM
stocks 66
DOI: 10.1057/9781137361301.0003 vii
viii List of Tables
10.2 Control variables for regression analysis 67
10.3 Descriptive statistics for the dependent variables 67
10.4 Regression results for the first sample 68
10.5 Regression results for the second sample 69
11.1 Eligible sample of market-switching stocks 74
11.2 Average market capitalization of sample stocks 75
11.3 Market-switching stocks and volatility ratios by year
and direction of transfer 78
11.4 Relative risk for switchers, combined samples 82
12.1 GARCH results for all switchers 86
12.2 Robust GARCH results for all switchers 86
DOI: 10.1057/9781137361301.0003
Acknowledgements
This book had its origins in a piece of research carried out
for the management team of the Alternative Investment
Market (AIM). The authors wish to acknowledge the
helpful comments of the AIM management team on this
research as it progressed. The AIM management team
also provided introductions to the interviewed nominated
advisors, whom we wish to thank for their help.
DOI: 10.1057/9781137361301.0004 ix