Liquidity Following MiFID II estimating the effect of research unbundling on norwegian small and mid-cap stocks

Utkilen, Henriette; Wakeford-Wesmann, Synne
Master thesis
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URI
http://hdl.handle.net/11250/2609729
Date
2019
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Abstract
MiFID II was implemented in 2018 and requires that cost of research products is unbundled

commission fees. An anticipated consequence of the” inducement rule” is reduced coverage of

small-and mid-cap stocks. In light of prior literature on the relationship between analyst

coverage and stock liquidity, we investigate whether MiFID II has 1) affected the analyst

coverage of Norwegian small- and mid-cap stocks, and 2) affected the liquidity of Norwegian

small- and mid-cap stocks. Through our empirical analysis, we are not able to estimate a

meaningful impact of MiFID II on the number of analysts, with a marginal, insignificant

reduction of 0.04 per cent. However, we do find that the liquidity of Norwegian small- and

mid-cap stocks has decreased following MiFID II and estimate an increase in the relative Bid-

Ask spread of ~100 bps in the subsequent period.