In the paper, The Need for Both Strong Regulators and Strong Laws: Evidence from a Natural Experiment, which was recently made publicly available on SSRN, I analyze whether strong law is effective in the presence of weak regulatory institutions. This is a live-issue for policy setters as they attempt to reform the financial system to prevent future market misconduct. This has become particularly relevant as the EU has attempted to reform securities laws under the Markets in Financial Instruments Directive (MiFID), and the regulation of financial markets in the US has sustained recent criticism. I use a difference-in-difference methodology to disentangle the effects of the design of news laws from their actual implementation, and I find that strong law in the presence of weak regulations might actually worsen market conditions. This provides additional empirical support for the prediction in Bhattacharya and Daouk (2009) that ‘no law’ can sometimes be better than ‘good law’. This also suggests that empirical law and finance work should carefully distinguish between the mere presence of laws, and their enforcement.

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