Proceedings of The 12th International Conference on New Ideas in Management, Economics and Accounting
Asset Pricing across London’s AIM and Main Market
Hadeer Mounir, Heba Ali, Ehab K.A. Mohamed
This study aims at comparing the stock price risk, risk premium and the risk-return tradeoff across the Alternative Investment market (AIM) and the Main Market in the London Stock Exchange (LSE), using various definitions of risk: total risk, idiosyncratic volatility, market systematic risk, and downside risk. The final sample consists of 2,574 firms listed on the AIM and 3,051 firms listed on the Main Market over the time period 1999-2018. The findings document that the AIM is associated with higher total risk and higher idiosyncratic volatility compared to the Main, while interestingly the findings show lower systematic risk for the AIM, measured by beta. The overall findings for portfolio sorting based on highest and lowest risk portfolios indicate a positive risk-return tradeoff in both markets, however, the spreads in returns are much larger in the AIM compared to the Main, indicating inherently higher risk in the AIM. The study also uses an interaction term between the Market type (dummy variable) and the various risk factors in a series of Fama-Macbeth regressions and document significant differences in risk premium between both markets.
keywords: Alternative Investment Market, Asset pricing, Main Market, Risk, Stock Returns