The European Market Abuse Directive: Has it Worked?

Abstract

In this paper, we examine whether the Market Abuse Directive (MAD) has been effective in achieving its objectives of deterring the market manipulation activities, increasing the timeliness of information and decreasing the disclosure of inside information to select groups. Our sample consists of firms listed on Frankfurt Stock Exchange. We use stock prices and analysts' forecast-based proxies to examine the impact and effectiveness of MAD. The analysis based on these two set of proxies provides evidence that the adoption of MAD has been effective. In particular, we find that after the implementation of MAD, on average, (1) the volatility of stock prices around earnings announcement declines, (2) stock prices remain closer to their post earnings announcement level during the period before earnings announcement, (3) the accuracy of analyst forecasts improves, (4) the dispersion of analyst forecasts decreases, and (5) the number of analysts following a company declines.We would like to thank Richard Levich, co-editor, an anonymous reviewer for their constructive comments that helped us to improve the paper. We would also like to thank the participants of 34th EAA Annual Congress -Rome, Italy and the members of the dissertation committee of the corresponding author, Khurram Shahzad.

Insider Trading and the Market Abuse Directive: Are Voluntary and Mandatory Takeover Bids Different?

“…Christensen et al (2011Christensen et al ( , 2016 find improved liquidity after the introduction of the MAD. In addition, the MAD has proved effective in reducing pre-event informed trading: among others, Shahzad and Mertens (2017) focus on earnings announcements in Germany, while Prevoo and Ter Weel (2010) analyze corporate news announcements in the Netherlands. However, analyzing the profitability of legal trading made by insiders, Bartosz Gębka et al (2017) find that the MAD had no appreciable effects on returns generated by insider portfolios.…”

Market abuse under different close price determination mechanisms: A European case

“…In this respect, the Market Abuse Directive (MAD), was replaced by the Market Abuse Regulation (MAR) and the Directive on Criminal Sanctions for Market Abuse (CSMAD or MAD II) in 2016, in an EU-wide attempt to promote market fairness and transparency in European stock markets. Recent research provides evidence that the adoption of MAD II by the EU countries has been effective in preventing market manipulation (Cumming et al, 2020;Shahzad & Mertens, 2017).…”

The role of sentiment and stock characteristics in the translation of analysts’ forecasts into recommendations

“…4.2.3-Translation of analysts' forecasts into recommendations. Influence of the Market Abuse Directive.The literature has shown evidence of the impact of regulatory changes on analyst behaviour(Dubois et al 2014, Shahzad andMertens 2017). Taking into account their potential effect on the strategic component of analyst behaviour, and the characteristic differences between forecasts and recommendations, the issue remaining for empirical analysis is whether regulatory measures have a significant impact on the translation of analysts' forecasts into recommendations.In 2003, the EU passed the Market Abuse Directive, aimed at preventing managers from making selective information disclosures and at uniform treatment of conflicts of interest among analsyts in the EU member countries.…”