To put the turnover of Figure 13.3,

, into perspective, let's do a back of the envelope calculation of what an investor's average turnover per stock would be were he to follow a policy of investing in the S&P 500 portfolio. Because the portfolio is value weighted, the trading would be required when Standard and Poor's changes the constituent stocks. (Let's ignore additional, but less important reasons like new share issuances and repurchases.) Assuming they change 23 stocks a year (the historical average since 1962) what would you estimate the investor's per stock share turnover to be? Assume that the average total number of shares outstanding for the stocks that are added or deleted from the index is the same as the average number of shares outstanding for S&P 500 stocks.

The investor's per stock share turnover is .................%. (Round to one decimal place.)

Figure FIGURE 13.3 140% 120% 100% 80% NYSE Annual Share Turnover, 1970-2015 The plot shows the annual share turnover (number of shares traded in the year/total number of shares). Such high turnover is difficult to recon- cile with the CAPM, which implies that investors should hold passive market portfolios. Note also the rapid increase in turnover up through 2008, followed by a dramatic decline post-crisis. Source: www.nyxdata.com NYSE Annual Turnover 60% 40% 20% 0% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Print Done Figure FIGURE 13.3 140% 120% 100% 80% NYSE Annual Share Turnover, 1970-2015 The plot shows the annual share turnover (number of shares traded in the year/total number of shares). Such high turnover is difficult to recon- cile with the CAPM, which implies that investors should hold passive market portfolios. Note also the rapid increase in turnover up through 2008, followed by a dramatic decline post-crisis. Source: www.nyxdata.com NYSE Annual Turnover 60% 40% 20% 0% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Print Done