Transparency and Market Quality: An Analysis of the Effect of MiFID on Euronext

Abstract

MiFID is the latest and most important European Directive in the area of market micro-structure. It came into force as an important step toward the creation of a competitive and efficient capital market. Although the implementation of this Directive was largely overshadowed by the recent financial crisis - whose effects we can still observe - this study aims to provide some insights into the impact of MiFID on the performance and quality of Euronext. Using a large sample of publicly listed companies in Europe, this empirical research examines the effect of pre-trade and post-trade transparency on market and order execution quality. The study measures, first, market quality in terms of efficiency (return volatility, return auto-correlation, and FITC) and liquidity (quoted spread, turnover and number of transactions). Secondly, the study investigates order execution quality using the EBEX indicator. The empirical results show, after controlling for some variables, an improvement in certain dimensions of market quality for most liquid stocks and a better order execution quality after MiFID implementation.