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Trading and arbitrage in cryptocurrency markets

Makarov, Igor and Schoar, Antoinette (2020) Trading and arbitrage in cryptocurrency markets. Journal of Financial Economics, 135 (2). 293 - 319. ISSN 0304-405X

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Identification Number: 10.1016/j.jfineco.2019.07.001

Abstract

Cryptocurrency markets exhibit periods of large, recurrent arbitrage opportunities across exchanges. These price deviations are much larger across than within countries, and smaller between cryptocurrencies, highlighting the importance of capital controls for the movement of arbitrage capital. Price deviations across countries co-move and open up in times of large bitcoin appreciation. Countries with higher bitcoin premia over the US bitcoin price see widening arbitrage deviations when bitcoin appreciates. Finally, we decompose signed volume on each exchange into a common and an id- iosyncratic component. The common component explains 80% of bitcoin returns. The idiosyncratic components help explain arbitrage spreads between exchanges.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-f...
Additional Information: © 2019 Elsevier B.V.
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
Date Deposited: 03 Apr 2019 08:21
Last Modified: 03 Apr 2020 23:07
URI: http://eprints.lse.ac.uk/id/eprint/100409

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