Stock market turnover ratio - Country rankings

Definition: Turnover ratio is the value of domestic shares traded divided by their market capitalization. The value is annualized by multiplying the monthly average by 12.

Discussion: The stock market turnover ratio equals “the value of all stock market trades (the number of transactions times their values) / the market value of all listed companies (the number of shares outstanding times their values)". As such, the ratio is a measure of how active the stock market is. A country may have many listed companies or large market capitalization but relatively few active trades. Conversely, there may be relatively few listed companies and relatively low market capitalization but many trades.

Looking at all countries with a stock market over the last ten years, the correlation between the market capitalization and the turnover ratio is about 0.5. The positive correlation means that, for the most part, larger markets are also relatively active. However, the correlation is not close to 1, i.e. high capitalization does not mean that a market is necessarily also very active.

Also, note that the turnover ratio has a positive correlation with another measure of stock market activity: Value traded which is the total volume of all stock market trades over a year divided by the GDP (not by the market capitalization). The correlation, however, is about 0.4 and not close to 1. Therefore, to assess how active a market is, one should look at both measures.