Market Infrastructure

U.S. Turnover Outpacing Europe

There are many ways to compare various equity markets. In recent weeks, we’ve compared U.S. returns to Europe (don’t overlook dividends) and fragmentation in the U.S. and Europe (fragmentation is similar in both regions). 

Today, we look at turnover (also known as velocity), a measure of market liquidity. 

Turnover is different from a raw value or shares traded metric. By dividing the annual value traded by a market’s capitalization, we can see how many times a year each stock trades, on average. That lets us compare large markets with small markets on a more level playing field. 

In theory, higher turnover is better because it’s easier to buy or sell a large holding in a company with less trading costs from market impact

Mind the gap: U.S. and Europe turnover diverging 

Although the way trades are recorded in Europe can be very different to the U.S., especially for dark trades and CFD (swap) trades, we find data that, in recent years, the turnover ratios have diverged (chart below).   

  • U.S. turnover moved slightly higher since 2018, peaking above 2.0 in 2020, meaning each share outstanding traded an average of 2 times that year, boosted by the surge in trading and volatility brought on by Covid (blue line). 
  • European turnover has slowed (gold line), and based on our estimates of trading, it has dropped under 1 so far this year. Thought of another way, the average hold time for a share across all investors was about a year. 

Chart 1: U.S. turnover holding above pre-pandemic levels, while it trends lower in Europe 

U.S. turnover holding above pre-pandemic levels, while it trends lower in Europe

Why the difference? 

There are a number of underlying factors that make the European market quite different from the U.S. market.   

Data suggests households’ direct share ownership in Europe is lower than in the U.S. According to ICI, European households keep more of their wealth in banks, while U.S. investors use capital markets more for investments in the form of regulated (mutual) funds. 

On the whole, U.S. markets may also have more active retail investors than Europe. However, WFE data indicates that, at the country level, some European countries, like the Baltics and many Nordic countries, do, in fact, have similar levels of retail investor participation to the U.S. 

Chart 2: U.S. households invest at double the rate of European Union households 

U.S. households invest at double the rate of European Union households

A strong IPO market might help 

IPOs are important to investors because they add opportunities for investors to invest in new and growing companies. A strong IPO market also adds more shares to trade (along with more shares outstanding, so it doesn’t necessarily follow that turnover increases). 

Interestingly, data from PwC suggests Europe averaged about 25% more IPOs than the U.S. between 2012-17. However, Europe’s IPO count has been trending lower since 2014 (gold line). 

In contrast, since 2018, the U.S. IPO market has been historically strong. Even excluding 2021 and its SPAC-driven spike, the U.S. still averaged double the number of IPOs as Europe since 2018 (blue line). 

Chart 3: U.S. seeing double the number of IPOs as Europe since 2018 

U.S. seeing double the number of IPOs as Europe since 2018

Here, too, the same structural factors we highlighted above may have an impact. IMF research shows that: 

  • Eurozone corporates get less than 30% of their financing from listed securities, with listed equities (dark green area) making up the majority. 
  • The U.S. gets more than two-thirds of its financing from listed securities.  

Interestingly, the same data shows that the U.K. falls between the U.S. and Eurozone. 

Chart 4: Eurozone companies rely on bank financing, U.S. companies prefer capital markets 

Eurozone companies rely on bank financing, U.S. companies prefer capital markets

It’s possible that the decade-long era of zero and even negative policy rates in Europe increased the attractiveness of corporate financing from banks. And more recently, Europe has faced the additional risk factor of the war in Ukraine, creating uncertainty that’s a headwind to IPOs, on top of the challenges from high inflation and rising interest rates that the U.S. has also faced. These factors could, in turn, help explain the downtrend in European IPOs. 

Of course, like with retail participation, IPOs are a case where aggregate European results can differ significantly from individual countries. For example, the number of listings on Nasdaq Stockholm has more than doubled since 2012, and they’re up 50% on Nasdaq Helsinki.  

Partly, this reflects cultural differences, where the default in some countries, like Germany, is for companies to stay private much longer, while these Nordic exchanges, for example, have developed active markets for small- and medium-sized enterprises. 

Structural factors matter 

It’s easy to blame market structure, but in reality, trading costs and complexity in the U.S. and Europe are pretty similar.  

Europe has more currencies, more languages, and more complicated clearing than the U.S., which likely adds more to the costs and complexity to trade. 

However, the data above also suggests that costs of capital affect financing choices, which, in turn, affects how attractive listed markets are to issuers and investors. That’s important to remember if we want to keep our capital markets growing and liquid. 

Michael Normyle, U.S. Economist at Nasdaq, contributed to this article.  

Phil Mackintosh


Phil Mackintosh is Chief Economist and a Senior Vice President at Nasdaq. His team is responsible for a variety of projects and initiatives in the U.S. and Europe to improve market structure, encourage capital formation and enhance trading efficiency. 

Read Phil's Bio