Should Information be Sold Separately? Evidence from MiFID II
68 Pages Posted: 17 Jun 2019 Last revised: 12 Jun 2021
Date Written: January 30, 2019
Information production is key to the efficiency of financial markets. Does selling information separately improve its production? We investigate this question using MiFID II, a European regulation that unbundles research from transactions. We show that unbundling causes fewer research analysts to cover a firm. This decrease does not come from small- or mid-cap firms but is concentrated in large firms. Surprisingly, the reduction in analyst coverage is accompanied by a decrease in forecast error. Further analyses suggest that analyst competition enhancement could drive the results: inaccurate analysts drop out, and analysts who stay produce more accurate research.
Keywords: Analyst Research, Information Production, MiFID II, Unbundling
JEL Classification: G00, G14, G28
Suggested Citation: Suggested Citation