DOI: / Risk and Trading on London s Alternative Investment Market

Transcription

1 DOI: / Risk and Trading on London s Alternative Investment Market

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3 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: /

4 John Board, Alfonso Dufour, Yusuf Hartavi, Charles Sutcliffe and Stephen Wells 2015 Softcover reprint of the hardcover 1st edition 2015 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, Saffron 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. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: EPUB ISBN: PDF ISBN: A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. doi: /

5 Contents List of Figures List of Tables Acknowledgements vi vii 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 Regression Analyses with Multiple Variables Market-Switching Stocks GARCH Analysis of Switchers Conclusions 87 Appendix: Mean of Dummy Variables for all Estimated Regression Models 93 Bibliography 96 Index 109 DOI: / v

6 List of Figures 5.1 Number of listed stocks Market leavers Market capitalization bands Comparative industry groupings Companies by sub-sectors Age distribution for AIM and Main Market stocks Relative ages of AIM and Main Market stocks Trading frequencies AIM vs. Main Market Relative volatilities of AIM and Main Market stocks Relative volatilities of AIM and Main Market stocks based on trades Relative volatility by market capitalization Relative volatility by industry Relative volatility by firm age Volatility by trading frequency Average of risks for AIM and Main Market stocks Capitalization of switching stocks Relative risk analysis for switchers Relative post- to pre-switch volatilities Relative risk analysis controlling for market risk Relative volatility analysis for switchers, AIM to Main Market Relative volatility analysis for switchers, Main Market to AIM FTSE 100 log returns over the entire sample period 85 vi DOI: /

7 List of Tables 4.1 Number of companies listed on AIM and their market capitalization AIM market capitalization in April 2014, by sector Details of some of the larger junior exchanges in Small capitalization exchanges for which there is an empirical study Studies of IPOs on small capitalization markets Studies on IPO lock-ups on small capitalization markets Studies on IPO values on small capitalization markets Studies of the change in listing on systematic risk Reasons for switching between AIM and the Main Market ( ) Reasons for switching between AIM and the Main Market ( ) Annualized standard deviation of daily returns Eligible sample of stocks Data cleanse Corporate action adjustments Number of companies leaving AIM Mid-cap band representation Possible risk factors for riskiness of AIM stocks 66 DOI: / vii

8 viii List of Tables 10.2 Control variables for regression analysis Descriptive statistics for the dependent variables Regression results for the first sample Regression results for the second sample Eligible sample of market-switching stocks Average market capitalization of sample stocks Market-switching stocks and volatility ratios by year and direction of transfer Relative risk for switchers, combined samples GARCH results for all switchers Robust GARCH results for all switchers 86 DOI: /

9 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: / ix