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Analyst Incentives and Stock Return Synchronicity: Evidence from MiFID II

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  • Yihan Li
  • Xin Liu
  • Vesa Pursiainen

Abstract

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.

Suggested Citation

  • Yihan Li & Xin Liu & Vesa Pursiainen, 2022. "Analyst Incentives and Stock Return Synchronicity: Evidence from MiFID II," Financial Analysts Journal, Taylor & Francis Journals, vol. 78(4), pages 77-97, October.
    • Handle: RePEc:taf:ufajxx:v:78:y:2022:i:4:p:77-97
    DOI: 10.1080/0015198X.2022.2096990
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