Four Types of Security Exchanges

December 1, 2023

To test whether securities exchanges can be expected to maintain profitability during periods of market volatility, or even benefit from them, a brief search was made for classes of untoward events that are associated with serious, even calamitous economic or market outcomes: corporate earnings decline or collapse¹, inflation spike², interest rate spike³, or a spike in the VIX measure of stock market volatility⁴.
These included the five most serious instances, since 1974, of each of these four types of events. There were 14 years that did not overlap (e.g., an inflation spike and interest rate spike).
The S&P 500 declined in six, or 43%, of those periods: by -37%, -27%, -18%, -12%, -5% and -4%. NYSE trading volume dropped in only one year.
NYSE trading volume during the 13 other years increased by an average 23%. That’s roughly twice the normalized annual increase in trading activity during those few decades.
¹National income: Corporate profits before tax (without IVA and CCAdj), Billions of Dollars, Annual, Seasonally Adjusted Annual Rate, ²Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, Percent Change from Year Ago, Annual, Not Seasonally Adjusted, Annual, Not Seasonally Adjusted, ³Federal Funds Effective Rate, Percent, Annual, Not Seasonally Adjusted, ⁴CBOE Volatility Index: VIX, Index, Analysis began at the inception of VIX Index in 1990.

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