17 August 2022 Financial Analysts Journal

Analyst Incentives and Stock Return Synchronicity: Evidence from MiFID II

  1. Yihan Li
  2. Xin Liu
  3. Vesa Pursiainen
MiFID II affects sell-side analysts’ incentives in Europe, but does the change alter performance? Analysis indicates that MiFID II improves the quality of individual analyst work as well as aggregate stock price informativeness.
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MiFID II affects sell-side analyst incentives in Europe, forcing analysts to justify the value they add. While the number of analysts decreases, the average stock return synchronicity with the market also decreases, implying an improvement in price informativeness. The decrease in synchronicity is larger for firms that are more important for the analysts and brokers covering them. It is also asymmetric and substantially larger for negative market movements. Our results suggest that, by changing incentives, MiFID II not only improves the quality of individual analyst work, but also achieves an improvement in the aggregate stock price informativeness.

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