How does interest affect the stock market?

globalization

In 1980 the buyers of shares held them in their possession for around ten years. The purchase of a share was associated with a long-term investment interest. In 2019, shares were sold on average after a good nine months. Especially in computer-aided, automated trading, short-term price changes are the focus. In times of crisis, the holding period is shortened again - in 2008, shares were sold again after an average of just under four months. In 2015, the highest level in stock trading was reached at US $ 152.7 trillion (2019: US $ 119.9 trillion).

Facts

Between 1980 and 2019, the stock holdings and trading in stocks rose sharply. Since 2000, however, the development has not been straightforward. In 2008, the value of the shares was roughly the same as in 2003/1999, and share trading was roughly the same in 2005 as in 2000 and 2014, the same as in 2008. In the 1990s, however, shares and trading grew in almost everyone Year.

Stock trading and stocks also developed at different speeds: Stock trading increased more than twenty-fold between 1990 and the average for 2017 to 2019 (factor: 22.2). The number of shares rose only 9.7 times. The divergent development of both parameters suggests that stocks are not only used for investment financing and long-term private investments, but are also increasingly used for financial speculation.

The holding period of the shares is correspondingly shorter. The securities are bought and sold faster. In 1980, the annual turnover rate was 0.1 - on average, the buyers of shares held them in their possession for almost ten years. In the crisis year 2008, the turnover rate was 32 times higher, shares were sold again on average after a holding period of just under four months. Compared to this high, share trading calmed down in the following years: from 2009 to 2019, shares were held for between six and nine and a half months.

The increasingly shorter holding period in the overall trend is also related to the increased mechanization of stock trading. The so-called automated or algorithmic trading has led to a significant acceleration of the stock market, as computers can react to trading signals within milliseconds. Automated trading was originally developed for the proprietary trading business of banks, but is now also used in particular by hedge funds and other institutional investors. According to the Deutsche Bundesbank, high-frequency trading (HFT) as a sub-category of general computerized trading accounted for almost 50 percent of trading activities in the most liquid market segments in the US and Europe in 2016.

In times of crisis, the average turnover rate in stock trading usually increases significantly: from 2007 to 2008 it more than doubled - stock trading continued to grow (from 104.0 to 116.1 trillion US dollars) and market capitalization decreased drastically (from $ 67.8 trillion to $ 35.8 trillion). While the consequences of the financial crisis outside of the financial sector in 2009 were many times greater than in 2008, the development on the financial markets in 2009 was a little quieter than in the previous year: the market capitalization rose from 35.8 to 56.7 trillion US dollars (2019: 95.2 US $ trillion) and stock trading decreased from $ 116.1 trillion to $ 97.0 trillion (2019: $ 119.9 trillion). Most recently, the corona pandemic increased the turnover rate in March 2020 compared to January / February 2020. However, the turnover rate was already falling again in the months of April and May (as of July 2020).

Data Source

World Federation of Exchanges (WFE): www.world-exchanges.org: Statistics Portal, Annual Statistics Reports; Deutsche Bundesbank: Monthly Report October 2016

Terms, methodological notes or reading aids

The presentation and the information in the text refer to the exchanges, the members of the World Federation of Exchanges (WFE) are. The WFE is the world's largest exchange association. The direct sale of blocks of shares without the intermediary of a stock exchange is not included. The Stock holdings is expressed by the market capitalization. It indicates the number of shares valued at the respective prices (up to and including 2002: market capitalization at the end of the year; from 2003: annual data according to information from the WFE). In contrast to this stock size, the Stock trading a stream that measures total stock turnover during the year.

The Turnover rate is the quotient of trading and stock and indicates how often the stock has changed hands on average during the year.