Liquidity and volatility of stocks moved from the Main Market to the Alternative Investment Market (AIM)

Abstract

Companies moving from the Main market of London Stock Exchange to the AIM impair their information environment when entering the AIM; the information environment is measured by the stock’s liquidity and volatility. The primary empirical finding is that movement from the Main Market to the AIM decreases the liquidity and volatility of stocks. After controlling for the effects of factors that are known to affect stock liquidity and for the change in company characteristics after the movement date in the multivariate analysis, it is found that moving to the AIM is associated with a significant increase in Amihud illiquidity and the bid–ask spread and with a decrease in stock return volatility. The documented effects of movement to the AIM are found to be sustained over a long period of time following the movement event. This therefore implies that moving from the Main Market to the AIM is not improving the companies’ liquidity and volatility.