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

by J. Board, A. Dufour, Y. Hartavi, C. Sutcliffe

Overview

The alternative investment market (AIM) has seen rapid growth over its 19 years, and has emerged as the market of choice for smaller, newer companies, both in the UK and abroad. However, it has often had a volatile reputation among investors, who have commonly perceived sk in the AIM as more risky than the main market. In this book, a group of leading financial analysts conduct an extensive empirical study to compare the relative volatility of two UK equity markets run by the London Sk Exchange, over a ten year period. They analyse the comparative risks involved in the alternative investment market, the market of growing companies, and the 'main market', the market for more established companies. This book analyses the volatility of the alternative investment market, using a variety of techniques and approaches. It compares the volatility of sks in the markets, exploring variables such as size, industry, age and market switches. Using refined methods to focus on the difference between the markets, the authors provide a convincing study to challenge the idea that the alternative investment market is higher risk than the main market.

Product Details

ISBN-13:	9781137361295
Publisher:	Palgrave Macmillan UK
Publication date:	01/30/2015
Edition description:	2015
Pages:	111
Product dimensions:	5.51(w) x 8.50(h) x 0.02(d)

About the Author

John Board is Dean at the Henley Business School, University of Reading, UK, and was previously Director of the ICMA Centre, University of Reading, UK. His recent research has focused on the organisation and regulation of financial markets.

Alfonso Dufour is Associate Professor of Finance at the ICMA Centre, University of Reading, UK. He has a background in financial econometrics and has conducted extensive research on market structures, intraday dynamics of asset prices, and liquidity.

Yusuf Hartavi is currently pursuing his PhD in the area of market microstructure at the ICMA Centre, University of Reading, UK, having obtained an MSc in International Securities, Investment and Banking. He has held professional positions at UniCredit Group as an Internal Auditor and at Istanbul Development Agency, the local authority for regional development.

Charles Sutcliffe is Professor of Finance at the ICMA Centre, University of Reading, UK. Previously he was Professor of Finance and Accounting at the University of Southampton; Visiting Professor at the London School of Economics and Political Science; and Northern Society Professor of Accounting and Finance at the University of Newcastle upon Tyne, UK.

Stephen Wells is an independent Consultant in Financial Market Development. His interest focuses on equity and bond markets in developed and developing countries, with particular emphasis on markets for smaller companies.

Table of Contents

1. Abstract 2. Introduction 3. Activities 4. Interviews 5. Literature Review 5.1. Background on AIM 5.2. Literature Review of Empirical Studies of Small Cap Markets 5.3. Initial Public Offerings 5.4. Delisting 5.5. Risk 5.6. Other Empirical Studies 5.7. Conclusions 6. Empirical Analysis 6.1. Data Preparation and Sample Selection 6.2. Adjustments to the Data 6.3. Survivorship Bias 7. Preliminary Data Analysis 7.1. Market Value 7.2. Industry Groupings 7.3. Age 7.4. Liquidity 8. Volatility Estimation 8.1. Volatility Estimates Based on Daily Representative Prices 8.1.1. Standard Deviation 8.1.2. Garman-Klass 8.1.3. Squared Returns 8.2. Volatility Estimates Based on Intraday Prices 8.2.1. Sum of Squared Returns 8.2.2. Daily Garman-Klass 8.2.3. Rogers-Satchell Volatility Estimator 8.2.4. Yang-Zhang Volatility Estimator 8.3. Period 8.4. Portfolios 9. Basic Analysis of Relative Volatility 10. Relative Risk Allowing for Size, Age or Liquidity 10.1. Size 10.2. Industry 10.3. Age 10.4. Liquidity and Market Volatility 11. Portfolio Effects 55 12. Regression Analyses with Multiple Variables 12.1. Regression Model 12.2. Regression Results 13. Market-Switching Sks 13.1. Switching Sks 13.2. Relative Volatility Analysis for Market Switching Sks 13.3. Switchers' Risk Relative to the Market 14. GARCH Analysis of Switchers 14.1. Introduction to GARCH 14.2. GARCH Results 15. Conclusions 16. References Appendix