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

Duan, K., Li, Z., Urquhart, A. ORCID: 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

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To link to this item DOI: 10.1016/j.irfa.2021.101725


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
Divisions:Henley Business School > ICMA Centre
ID Code:96480

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