Dynamic efficiency and arbitrage potential in Bitcoin: a long-memory approach

Duan, K., Li, Z., Urquhart, A. ORCID: https://orcid.org/0000-0001-8834-4243 and Ye, J. (2021) Dynamic efficiency and arbitrage potential in Bitcoin: a long-memory approach. International Review of Financial Analysis, 75. 101725. ISSN 1057-5219 doi: 10.1016/j.irfa.2021.101725

Abstract/Summary

Employing a long-memory approach, we provide a study of the evolution of informational efficiency in five major Bitcoin markets and its influence on cross-market arbitrage. While all the markets are close to full informational efficiency over the whole sample period, the degree of market efficiency varies across markets and over time. The cross-market discrepancy in market efficiency gradually vanishes, suggesting the segmented markets are developing to a consensus where all markets are equally efficient. Through a fractionally cointegrated vector autoregressive (FCVAR) model we show that when the efficiency in Bitcoin/USD and Bitcoin/AUD markets improves the cross-market arbitrage potential narrows, whereas it widens when the efficiency in Bitcoin/CAD, Bitcoin/EUR, and Bitcoin/GBP markets improves. A battery of robustness checks reassure our main findings.

Item Type	Article
URI	https://centaur.reading.ac.uk/id/eprint/96480
Identification Number/DOI	10.1016/j.irfa.2021.101725
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
Download/View statistics	View download statistics for this item