Extended-form Case Study

The shrinking stock market

Published on April 30, 2023   13 min

A selection of talks on Finance, Accounting & Economics

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Hello, I'm Professor Michael McDonald. I'm a professor of finance at Fairfield University in Fairfield, Connecticut. Today, I'd like to talk to you about an under the radar trend that's extremely important to the future of the financial markets. That is what I refer to as the shrinking stock market.
What a lot of people don't realize is that the US stock market has actually shrunk over time. Not in terms of market capitalization necessarily, but in terms of the number of firms. Moreover, this shrinkage in the number of firms has been dramatic and prolonged over time. In 1997, the number of publicly traded companies in the US stock market peaked at roughly 10,060 publicly traded stocks, representing about 9,700 firms out there, because some companies have class A and class B shares, for instance. This includes some investment companies, closed-end funds, things like that. But big picture, it's about 10,000 publicly traded stocks. By the time we get to January 2015, there are 5,000 firms. That was actually up 100 companies over the previous year. That was the first time that we'd seen annual growth in the number of firms in the market since the Internet boom at the end of the 1990s. For essentially a 15-year period, we had a shrinking stock market. The New York Times talked about this in 2010 saying, despite all of the excitement over, say, General Motors coming back to the NYSE after their bankruptcy, the markets are actually getting smaller, not bigger. What's notable is that this isn't a world story. This isn't like stocks are becoming less attractive across the entire world, this is an isolated example related to the United States. This as an American story, and for that reason it's very problematic if you're involved with the US capital markets at all. Shrinking stock market is a result of