The Swedish stock market is one of the most liquid in Europe – but trails the U.S. in trading volume

The Swedish stock market is among the most liquid in Europe. However, in terms of trading volume, Sweden lags behind the United States. This can make it more expensive for, for example, pension funds to trade Swedish shares, according to researcher Björn Hagströmer in the new SNS report Liquidity in the Swedish Stock Market – An International Perspective.

A hallmark of a well-functioning stock market is high liquidity. Such markets are characterized by high trading activity and small spreads (the difference between buy and sell prices). A liquid market is associated with low capital costs for companies, efficient price formation, and low management costs for pension funds. In the report, Hagströmer compares the liquidity of the Swedish stock market with that of European and U.S. exchanges over the period 2010–2024.

He finds that Swedish stock market liquidity exceeds the European average across all firm segments—except for large-cap companies, where liquidity is roughly in line with the rest of Europe. According to Hagströmer, this can be explained by the high share of Swedish household, pension, and insurance capital invested in equities.

- Sweden is a positive exception in Europe thanks to its broad shareholding culture. The fact that Swedes have so much capital invested in stocks and equity funds has contributed to a highly liquid market. This creates a self-reinforcing ecosystem, where listing one’s company in Sweden becomes attractive, which in turn further strengthens liquidity, says Björn Hagströmer.

Despite the strengths of the Stockholm Stock Exchange, trading volumes are significantly lower than in the U.S., indicating a lower capacity to handle large trades—something particularly important for major asset managers and pension funds. Rapidly growing Swedish firms such as Spotify and Klarna have also chosen to list in the U.S. rather than Sweden. Hagströmer, however, argues that this is driven by factors other than liquidity.

- Klarna’s choice was probably due to a combination of the signaling value of a New York listing and the possibility of achieving a higher valuation—partly due to passive index funds. When a stock is included in major indices, mechanical demand from index funds is created, pushing up the price. That effect is much weaker for stocks listed on European exchanges, comments Hagströmer.

To strengthen Sweden’s and Europe’s attractiveness for “the next Klarna” Hagströmer proposes several measures:

• Safeguard household share ownership. Research shows strong evidence that individual participation in the stock market is beneficial for liquidity.

• Increase competition among exchanges. Swedish equities are now actively traded across multiple venues, which has boosted liquidity, but competition among European exchanges remains much weaker than in the U.S.

• Promote a pan-European stock market. Although Europe’s exchange landscape has consolidated somewhat, listings still largely follow national borders. A pan-European stock market—with harmonized listing and trading rules—would increase liquidity and broaden the investor base, which in turn could lead to higher equity valuations.

• Ensure a higher free float. A low proportion of freely tradable shares (free float) constrains liquidity. Swedish and European firms generally have much lower free floats than their U.S. counterparts.

Key findings from the report:

• Strong liquidity for Swedish large caps. Liquidity in Swedish large-cap shares is on par with that in the rest of Europe and the U.S. For smaller firms, Sweden’s market is among the most liquid in Europe but still trails the U.S.

• Lower trading volume in Sweden than in the U.S. Trading volume on the Swedish market is relatively low compared with the U.S., which may increase costs for large investors such as pension funds.

• The Stockholm Stock Exchange functions better than parts of the U.S. market. Swedish large-cap stocks have 25 percent lower effective spreads than comparable American firms listed on the New York Stock Exchange or Nasdaq.

• Liquidity worsened after the pandemic. Between 2010 and 2018, liquidity in the Swedish market improved significantly—especially for large caps, where spreads declined by over 40 percent. Since then, liquidity has weakened somewhat, likely due to the uncertainty caused by the pandemic, Russia’s invasion of Ukraine, and subsequent higher interest rates.

• High Swedish resilience during the pandemic. Sweden’s stock market showed greater resilience than both the U.S. and the rest of Europe during the pandemic. In the first months of 2020, spreads for Swedish large caps tripled, but they increased even more in the EU and the U.S.

About the report

Liquidity in the Swedish Stock Market – An International Perspective is part of the SNS research project Productivity, Competitiveness and Sustainable Growth, which focuses on the long-term conditions for higher productivity, stronger competitiveness, and sustainable economic growth. The project runs from 2024 to 2027.

About the author

Björn Hagströmer is Professor of Financial Economics at Stockholm University.

Contact: bjh@sbs.su.se / +46 (0)8 16 30 30