The authors have examined turnover in listed companies on the exchanges in 2002 in relation to the market cap of the individual companies. The higher the turnover in a company's shares in relation to its market cap, the higher the turnover rate. The results of the survey knock holes in the common misconception that the Danish equity market has poor liquidity.
The survey produced several results such as:
- Turnover on all five exchanges is highly concentrated on a few major companies, and some 90 per cent of the trading volume on the individual exchange derive from approx. 10 per cent of the listed companies.
- All exchanges have a 'heavy tail' of companies with low turnover rates. Deviations in the published and total turnover rates on the different exchanges therefore largely derive from differences in the turnover rates among the blue-chip companies. And the more and bigger the companies on an exchange - the higher the average turnover rate.
- All exchanges have low turnover rates for small cap companies. Exchanges with many small and mid-sized companies thus have a lower turnover rate than exchanges with relatively many blue-chip companies.
- The turnover rate in small and mid-sized Danish listed companies is on a par with corresponding companies in London and Helsinki, but somewhat lower than on the two other NOREX exchanges in Oslo and Stockholm. The differences in relation to the exchanges in Oslo and Stockholm may according to Nikolaj Hesselholt Munck and Kim Mortensen be ascribed to factors such as tax rules, financing systems, composition of investors and the share investment culture in general.
The two authors also point out that their analysis does not allow for the fact that public knowledge of a company has a positive impact on the turnover - a knowledge that for small and mid-sized companies primarily applies to investors in the home country.Considering this factor, the authors conclude that there is no obvious advantage for small and mid-sized companies to choose another exchange over the exchange of the home country - quite the opposite is the case.
Read the article "Homogeneous liquidity pattern across equity markets "in Focus no. 51 on the website of the Copenhagen Stock Exchange www.cse.dk..
