A Vector Error Correction Model (VECM) of Stockmarket Returns
GRAEME NEWELL University of Western Sydney and ANDREW BAUM University of Reading JUNE 2010 THE...
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GRAEME NEWELL
University of Western Sydney
and
ANDREW BAUM
University of Reading
JUNE 2010
THE PERFORMANCEOF PROPERTY COMPANIES
ON THE AIM STOCKMARKET
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PURPOSE OF PAPER
Assess significance of AIM stockmarket Assess significance of property
companies on AIM stockmarket Assess performance of property companies on
AIM stockmarket Assess impact of GFC on AIM property
companies
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SIGNIFICANCE OF AIM
AIM = Alternative Investment Market Purpose: small, growth companies: 1995+
Benefits Regulatory structure Role of NOMADs • IPO • ongoing support Other “growth” stockmarkets
• Europe • Asia • Americas
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SIGNIFICANCE OF AIM June 1995: # = 10 @ £80 million Dec 2007: # = 1694 @ £98 billion Feb 2010: # = 1268 @ £58 billion Sectors (10): eg: financial, oil & gas, mining Sub-sectors (42): eg: property Distribution • < £10M @ 41% • £10M - £50M @ 38% • £50M - £100M @ 9% • £100M - £500M @ 11% • > £500M @ 1% UK versus international
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# COMPANIES @ AIM: 1995-2009
1995
(Dec
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1996
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1999
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)
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2009
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)0
200
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1000
1200
1400
1600
1800
Year
To
tal (
#)
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£B @ AIM: 1995-2009
1995
(Dec
)
1996
(Dec
)
1997
(Dec
)
1998
(Dec
)
1999
(Dec
)
2000
(Dec
)
2001
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)
2002
(Dec
)
2003
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)
2004
(Dec
)
2005
(Dec
)
2006
(Dec
)
2007
(Dec
)
2008
(Dec
)
2009
(Dec
)0
20
40
60
80
100
120
Year
AIM
MA
RK
ET
CA
P (
£B
)
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UK (#) and international (#) over 1995-2009
1995
(Dec
)
1996
(Dec
)
1997
(Dec
)
1998
(Dec
)
1999
(Dec
)
2000
(Dec
)
2001
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)
2002
(Dec
)
2003
(Dec
)
2004
(Dec
)
2005
(Dec
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2006
(Dec
)
2007
(Dec
)
2008
(Dec
)
2009
(Dec
)0
200
400
600
800
1000
1200
1400
1600
UK (#)
INTERNAT. (#)
Year
Nu
mb
er
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% UK (# companies)
1995
(Dec
)
1996
(Dec
)
1997
(Dec
)
1998
(Dec
)
1999
(Dec
)
2000
(Dec
)
2001
(Dec
)
2002
(Dec
)
2003
(Dec
)
2004
(Dec
)
2005
(Dec
)
2006
(Dec
)
2007
(Dec
)
2008
(Dec
)
2009
(Dec
)75%
80%
85%
90%
95%
100%
# UK / # TOTAL
Year
Pe
rce
nta
ge
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SIGNIFICANCE OF AIM Capital raised
• IPO • further issues • £66 billion • £16B @ 2007
• £4B @ 2008 • £6B @ 2009 International exposure (# = 238 @ 19%)
• US • Canada • Australia • Cayman Island • BRIC • mining, property, oil and gas
Indices @ AIM: FTSE • AIM All Share • AIM 100 • sub-sectors (18) • property
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PREVIOUS RESEARCH @ AIM
Regulatory issues Sub-sector: apparel Finance industry reports
• NOMADs
• AIM commissioned (eg: LSE) Property companies @ AIM
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SIGNIFICANCE OF PROPERTY @ AIM
1998: # = 19 @ £0.35 billion Dec 2007: # = 108 @ £12.9 billion Feb 2010: # = 90 @ £6.1 billion Distribution
• < £10M @ 39% • £10M - £50M @ 33%
• £50M - £100M @ 8% • £100M - £500M @ 19%
• > £500M @ 2%
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# PROPERTY COMPANIES @ AIM: 1998-2009
1998
(Dec
)
1999
(Dec
)
2000
(Dec
)
2001
(Dec
)
2002
(Dec
)
2003
(Dec
)
2004
(Dec
)
2005
(Dec
)
2006
(Dec
)
2007
(Dec
)
2008
(Dec
)
2009
(Dec
)0
20
40
60
80
100
120
Year
Pro
pe
rty
#
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£B PROPERTY COMPANIES @ AIM: 1998-2009
1998
(Dec
)
1999
(Dec
)
2000
(Dec
)
2001
(Dec
)
2002
(Dec
)
2003
(Dec
)
2004
(Dec
)
2005
(Dec
)
2006
(Dec
)
2007
(Dec
)
2008
(Dec
)
2009
(Dec
)0
2
4
6
8
10
12
14
PROPERTY MARKET CAP
Year
£B
illio
n
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% PROPERTY (£) @ AIM: 1998-2009
1998
(Dec
)
1999
(Dec
)
2000
(Dec
)
2001
(Dec
)
2002
(Dec
)
2003
(Dec
)
2004
(Dec
)
2005
(Dec
)
2006
(Dec
)
2007
(Dec
)
2008
(Dec
)
2009
(Dec
)0%
2%
4%
6%
8%
10%
12%
14%
PROP. MARKET CAP/AIM MARKET CAP
Year
Pe
rce
nta
ge
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% PROPERTY (#) @ AIM: 1998-2009
1998
(Dec
)
1999
(Dec
)
2000
(Dec
)
2001
(Dec
)
2002
(Dec
)
2003
(Dec
)
2004
(Dec
)
2005
(Dec
)
2006
(Dec
)
2007
(Dec
)
2008
(Dec
)
2009
(Dec
)0%
1%
2%
3%
4%
5%
6%
7%
8%
# PROPERTY / # TOTAL
Year
Pe
rce
nta
ge
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SIZE OF PROPERTY SECTOR (£) Size of property sector: Feb 2010
• £6.1 billion• 10.5% (#3 sector)
Average property company size: Feb 2010• £68M (versus £46M @ AIM)
£ raised• 2007: £3.7B @ 23% AIM (#1)
• 2008: £7M @ 0.2% AIM• 2009: £1.4B @ 25% AIM (#1)
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PROPERTY @ TOP 50 @ AIM
2004: # = 1 2005: # = 3 (4th largest sector) 2006: # = 10 (1st) 2007: # = 11 (1st) 2008: # = 5 (3rd) 2009: # = 5 (3rd)
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LEADING PROPERTY COMPANIES @ AIM Songbird Estates: £1,103M (#2) London & Stamford: £596M (#12) Dolphin Capital: £355M (#22) Vinaland: £266M (#43) Max Property: £261M (#45) Raven Russia: £248M (#49)+ 9 others @ > £110M
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REGIONAL PROFILE (#)
UK @ 31% Central/Eastern Europe @ 22% Western Europe @ 20% Asia @ 20% Global @ 5% Other @ 2%
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PROPERTY SECTOR PROFILE• Residential • Office
• Retail • Industrial/logistics
• Hotel • Diversified
• Tourism/resort • Healthcare
• Ski resorts • Self storage
• Entertainment • Windfarms
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METHODOLOGY Aug 2005 – Feb 2010: monthly AIM All Share AIM Property Companies Other assets @ UK markets
• stocks • property companies • bonds
Risk-adjusted returns Portfolio diversification Impact of GFC: sub-periods (2)
• pre GFC • during GFC
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AIM PROPERTY SERIES
Established: Dec 2008 Start: Aug 2005 FTSE EPRA/NAREIT index # constituents: 13 Total market cap: £1.812 billion Major constituents
• London & Stamford • Dolphin Capital
• Raven Russia • Mirland
• Conygar • China RE Opportunities
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AIM SERIES
Jul-0
5
Oct-0
5
Jan-
06
Apr-0
6
Jul-0
6
Oct-0
6
Jan-
07
Apr-0
7
Jul-0
7
Oct-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Apr-0
9
Jul-0
9
Oct-0
9
Jan-
100.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
AIM Property Companies AIM All Share
Index
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IMPACT OF GFC
Pre-GFC @ Aug 2005 – Aug 2007 GFC @ Sept 2007 – Feb 2010 Investment dynamics re: GFC
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IMPACT OF GFC
Returns: 16.96% → - 41.63% Risk: 17.44% → 39.39% Risk-adjusted returns: #2 → #5 Diversification: 0.74 → 0.89 Comparison to other asset classes
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FUTURE OUTLOOK
Impact of GFC Capital raising Recovery @ 2009 – 2010 Future prospects
• Risk factors• Operational issues