Analyst Incentives and Stock Return Synchronicity: Evidence from MiFID II

62 Pages Posted: 21 Sep 2020 Last revised: 29 Jan 2021

See all articles by Yihan Li

Yihan Li

University of Bath, School of management

Xin Liu

School of Finance, Renmin University of China

Vesa Pursiainen

University of St. Gallen

Date Written: January 21, 2021

Abstract

Implemented in 2018, MiFID II changed 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 downside 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.

Keywords: stock return synchronicity, price informativeness, sell-side analysts, MiFID II

JEL Classification: G14, G15, G18, G24

Suggested Citation

Li, Yihan and Liu, Xin and Pursiainen, Vesa, Analyst Incentives and Stock Return Synchronicity: Evidence from MiFID II (January 21, 2021). Available at SSRN: https://ssrn.com/abstract=3667923 or http://dx.doi.org/10.2139/ssrn.3667923

Yihan Li (Contact Author)

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Xin Liu

School of Finance, Renmin University of China ( email )

Room 307A
Mingde Main Building, Renmin University of China
Beijing, Beijing 100872
China

Vesa Pursiainen

University of St. Gallen ( email )

Swiss Institute of Banking and Finance
Unterer Graben 21
St.Gallen, 9000
Switzerland

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