Market Evolution: 1996–2012

Abstract

We trace the evolution of U.S. stock markets during four time periods: Before Decimalization, from 1996 to 2000, After Decimalization, from 2001 to 2005, Electronic Trading I, from 2006 to 2010, and Electronic Trading II, from 2011 to 2012. The analysis shows how the influence of the basic variables that determine trading volume—shares outstanding, stock prices, and volatility—changed over this time span. The increase in trading volume is related to the decimalization of stock prices, the emergence of electronic stock exchanges in the last decade, and the concomitant increase in algorithmic trading.