The top stock markets and their trading volume

Thanks to Simoleon Sense, I came across an interesting graphic created by Credit Loans that shows the top stock markets of the world, along with trading volume. (You can access the graphic directly by using this link.)

(source: CreditLoan.com)

One should always keep in mind that stocks may be cross-listed across exchanges and countries so I'm not sure what the listed market cap actually represents. Some exchanges, like NYSE, also have exchange-traded-debt and other unusual instruments that may be listed. But in any case, as long as we treat this as just a rough representation, we'll be fine.

Not surprisingly, the first thing that jumps out is how big the NYSE's listed market capitalization is. It dwarfs everyone else and is larger than 2 or 3 of the largest exchanges. The Tokyo Stock Exchange is still hanging tough in the #2 spot after a 20 year bear market that wiped out more than 50% of its value.

This graphic is just a slice in time but if one looked at a similar picture from 10 years ago, I'll bet the emerging markets won't have such large stock markets. Right now, the exchanges of countries like Brazil, India, and China havem, or are about to, surpass developed country exchanges of Canada, Spain, Germany, and so forth.

Anyway, the reason I'm posting this is because of the volume figures that are shown. The trading volume is quite insightful to me. Without looking at the source where the data comes from, it's not clear to me how the volume is computed. A stock may be listed on one exchange but it may be traded on an electronic exchange owned by a competitor so it's murky for those like me who don't work in the industry.

Leading the pack with no one anywhere near is the NASDAQ. It appears that NASDAQ has a greater volume than almost, but not quite, all the other exchanges combined! This shouldn't be too surprising given how NASDAQ has historically been famous for electronic exchanges with faster execution and lower fees. NASDAQ also lists a lot of volatile stocks, particularly in the technology and biotechnology area, which are favoured by traders. Some of the most heavily traded stocks are companies like Cisco, Microsoft, and so forth. NASDAQ's volume is almost 5x its listed market cap but, as I mentioned before, this may included NYSE-listed (or other) stocks (I'm not realy sure.)

I'm surprised that Tokyo still has fairly high volume (half its listed market cap.) I always read stories about how Japanese retail investors have given up on stocks but it appears that there is still high interest.

Compared to the hyper-active American exchanges, you'll notice that trading is more muted in other countries. It is quite noticeable in developing countries, where the volume is 1/3 to 1/4 of listed market cap.

Although low volume may imply less efficient markets (price discovery may be poor), it also means that less is being skimmed by financial intermediaries (brokers, exchanges, etc; also to regulatory agencies.) I suspect that Americans and others using American exchanges pay more to financial intermediaries than in other parts of the world (Note that this is not the same thing as commissions. Given the high volume in America, commissions are likely to be lower (basic supply & demand) than in other parts of the world. However, society as a whole likely pays a higher dollar amount.)