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Cambridge Journal of Economics Advance Access originally published online on May 30, 2006
Cambridge Journal of Economics 2006 30(6):955-979; doi:10.1093/cje/bel014
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© The Author 2006. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

Capital market trading volume: an overview and some preliminary conclusions

John Grahl and Photis Lysandrou*

* London Metropolitan University

Address for correspondence: P. Lysandrou, London Metropolitan University; email: p.lysandrou{at}londonmet.ac.uk

Abstract

This paper suggests an explanation for the heavy trading volume observed on the US capital markets, the world's largest. Heterodox economic theory puts much of this volume down to speculation. Mainstream theory tends to support this thesis, either directly or indirectly, by giving space to the idea that trading activity is for the most part exogenous to the functioning of the capital markets. The central hypothesis of this paper is that the trading volumes observed are an endogenous feature of the capital markets, because they are to a great extent determined by the needs of the institutional investors who predominate on these markets. This endogeneity of trading is posited in connection with the emergence of a new ‘core–satellite’ paradigm in institutional investment, a development that essentially manifests the asset-management industry's transformation from a small industry serving a few wealthy clients to a mass industry serving large sections of the population.

Key Words: Capital markets • Trading volume • Institutional investors • Core–satellite paradigm

JEL classifications: G10, G20

Manuscript received May 9, 2005; final version received October 28, 2005.


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