Celebrating Success – Professor Darren Duxbury and Professor Bartosz Gebka

Congratulations to Professor Darren Duxbury and Professor Bartosz Gebka and their co authors Samah El Hajjar (ex-NCL PhD, now at ICMA, Reading), have had the following paper entitles “Behavioral effects of capital market regulations on investor (ir)rationality and market (in)efficiency: Evidence from MAD and TPD EU directives” accepted for publication in the Journal of Economic Behavior & Organization.  The paper is published open access and available at https://doi.org/10.1016/j.jebo.2026.107497

Abstract

Regulatory reform has the potential to shape behavior and hence the functioning of economic institutions. We examine whether the EU Market Abuse Directive (MAD) and Transparency Directive (TPD) reduced irrational herding/anti-herding of investors, hence improving informational efficiency of capital markets. Using daily stock-level data from ten EU markets, we find pre-MAD anti-herding, which was eliminated post-MAD, while TPD enactment provided no additional benefits in curbing irrational investor behavior and market inefficiency. We further investigate market- and non-market-related explanations of our findings, and find that pre-reform market behavior is indicative of overconfidence and weak self-control of investors (proxied by national culture). Our results indicate that a regulatory reform (MAD) aimed at addressing the misuse of private information led to a substitution of irrational for information-driven trading, hence promoting market efficiency.

Layperson summary (with link to 2024 paper in British Journal of Management is https://doi.org/10.1111/1467-8551.12720

In the paper we investigate the impact of two European Union (EU) regulations—the Market Abuse Directive (MAD) and the Transparency Directive (TPD)—on stock market efficiency, adopting a behavioral lens.  To this end, we examine irrational investor behavior, in the form of herding and anti-herding, as an indicator of market inefficiency.  We find the regulations, which aimed to prevent market manipulation (MAD) and ensure companies disclose information more clearly and frequently (TPD), significantly reduced irrational investor herding and anti-herding.  Pre-MAD, we find excessive levels of stock return dispersion, indicative of anti-herding behavior among investors and hence market inefficiency. The introduction of MAD eliminated this market inefficiency to such an extent that the subsequent TPD reform brought no further efficiency gains in the guise of reduced herding/anti-herding.

This new research is a powerful follow-up to our 2024 work published in the British Journal of Management, which focused on the mandatory adoption of International Financial Reporting Standards (IFRS). While the earlier study showed that standardized accounting (IFRS) reduced the influence of irrational investor sentiment on stock returns, the 2026 paper in the Journal of Economic Behavior & Organization points the behavioral lens at MAD and TPD regulations and their influence on irrational investor herding and anti-herding. Taken together, our findings speak to the need for evidence-based policy making and the ex-post effectiveness of regulatory reforms to incorporate behavioral dimensions. Disclosure policies should be assessed not only in terms of the volume and quality of information they provide, but also in relation to how investors interpret and react to that information. Behavioral metrics need to be incorporated in post-reform regulatory impact assessments, alongside traditional financial indicators, to better capture broader economic outcomes.