In business, the term “turnover” can have multiple meanings. However, it has a particular meaning in trading. In general, the term refers to the amount of stock traded by individual traders, stock exchanges or countries. It can also refer to the activity level of trading in a specific portfolio.
Turnover, in the stock market, refers to the total value of stocks traded during a specific period of time. The time period may be annually, quarterly, monthly or daily. If, for example, the trading turnover for a month were $3 billion, it would simply mean that the total value of stocks traded during the month was equal to $3 billion.
Turnover can measure the trading volume for individual traders, stock markets or entire countries. For example, a stockbroker will use turnover to measure the size of his trades, while stock markets and countries will use their respective turnovers to gauge the size of the overall market for stocks.
The turnover of a particular stock market is a good indicator of the overall health of the market. When the turnover is high, it indicates that investors have confidence in the market and that they are actively investing in the market. This is what is referred to as a bull market. When the turnover is low, it indicates that investors are wary and either holding their investments or selling them at a low price. This is what is referred to as a bear market.
Portfolio turnover is a measure of the activity of a specific portfolio of stocks. It is calculated by dividing the total volume of stocks bought and sold by the total value of the overall portfolio. A high portfolio turnover indicates that the stocks in the portfolio have changed frequently, and this may indicate that the market is highly volatile and subject to frequent changes.
- Introduction to Corporate Finance; William L. Megginson and Scott B. Smart