TY - JOUR
T1 - Analyst Incentives and Stock Return Synchronicity
T2 - Evidence from MiFID II
AU - Li, Yihan
AU - Liu, Xin
AU - Pursiainen, Vesa
N1 - Funding Information:
We appreciate the helpful comments from Simone Giansante, Shiyang Huang, Tse-Chun Lin, Anna Obizhaeva, Pietro Perotti, Hanwen Sun, Chi-Yang Tsou, Ru Xie, as well as seminar participants at the University of Hong Kong and conference participants at IRMC 2020, SFM 2020, ESWM 2020, HARC 2021, SWFA 2021, SES virtual conference 2021, EEA 2021, CMES 2021, CIRF 2021, AFFI 2021, ERIC 2021 PhD Consortium, and Bath PhD conference 2020. We are grateful to Nasdaq Nordic Foundation for funding support. Vesa Pursiainen is grateful for the financial support from the University of Hong Kong Faculty of Business and Economics. This research was partly done during his time at the University of Hong Kong. All errors are ours.
PY - 2022/12/31
Y1 - 2022/12/31
N2 - 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.
AB - 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.
KW - MiFID II
KW - price informativeness
KW - sell-side analysts
KW - stock return synchronicity
UR - http://www.scopus.com/inward/record.url?scp=85136098116&partnerID=8YFLogxK
U2 - 10.1080/0015198X.2022.2096990
DO - 10.1080/0015198X.2022.2096990
M3 - Article
AN - SCOPUS:85136098116
SN - 0015-198X
VL - 78
SP - 77
EP - 97
JO - Financial Analysts Journal
JF - Financial Analysts Journal
IS - 4
ER -