Effects of MiFID II on Stock Price Formation

Abstract

This paper examines effects of MiFID II on European stock markets. We study the effects of the new tick size regime, both intraday and in the closing auction. An increase (decrease) in tick size is associated with a decrease (increase) in intraday liquidity, but a more (less) stable market. In the closing auction an increase in tick size has a positive effect on liquidity. Moreover, we report a positive relationship between tick size and transacted volume, in particular in the closing auction. Finally, closing auction volumes increased heavily since MiFID II and price formation in closing auctions became more efficient.

Keywords: MiFID II, price formation, price efficiency, tick size, closing auction, closing prices

JEL Classification: G10, G14, G15, G18, D44