Price discovery risk in stock markets: theoretical and empirical aspects.

Summary The thesis focuses on the study of the impacts of the European Markets in Financial Instruments Directive (MiFID) and its revision (MiFID II and MiFIR) on the price discovery process. According to Schreiber and Schwartz (1986), price discovery is defined as the incorporation of new information into asset prices and the search for equilibrium by the market. The objective of this key directive is to increase competition and efficiency in European markets while ensuring the protection of investors, through an increase in transparency and a requirement for a best execution policy on the part of investment firms. More specifically, the study focuses on French CAC40 stocks, which can now be traded outside the regulated national market, Euronext Paris. Multilateral trading platforms, systematic internalisers and dark pools are alternatives that have been introduced by the directive. In the absence of consolidation of the European market as a whole and in the presence of spatial fragmentation of stock market orders, the risk is that some exchanges will receive more buy orders and others more sell orders. Some believe that technology should link spatially fragmented markets. However, if enough order flow is removed from the regulated and transparent market, the market may no longer provide price discovery because equilibrium prices and quantities would not have been discovered by the market as a whole. Moreover, even in the presence of a spatially consolidated market, a temporal fragmentation may remain. This fragmentation corresponds to the fracturing of the order flow over time, making it more difficult for buy and sell orders to meet. [...] The thesis first sheds light on the issues and implications of the directive on the efficiency of European markets. In the first chapter, we propose a framework for evaluating the directive. A selection of the main academic works in the field of market microstructure is carried out in order to identify the unresolved issues and the challenges for its current revision (MiFID II). Next, a review of the literature on the market price discovery process is conducted by highlighting the main theoretical, methodological and empirical works. The two main functions of a market are to provide liquidity and to allow price discovery. However, the price discovery function has often been a neglected regulatory objective compared to the objectives of transparency and competition. [...].