Trading and arbitrage in cryptocurrency markets

By Igor Makarov, Antoinette Schoar. Journal of Financial Economics, 2020

658 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c86e30f6f190fdce85945cb1c5a7549449418b66

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Citations in the corpus

Cryptocurrency trading: a comprehensive survey (2020, background): “[157] studied price impact and arbitrage dynamics in the cryptocurrency market and found that 85% of the variations in bitcoin returns and the idiosyncratic components of order flow play an important role in explaining the size of the arbitrage spreads between exchanges.”
Should investors include Bitcoin in their portfolios? A portfolio theory approach (2020, background): “Recently, Makarov and Schoar (2019) show the arbitrage opportunities in cryptocurrency markets.”
Equilibrium Bitcoin Pricing (2018, positive): “On the empirical side, Makarov and Schoar (2018) and Borri and Shakhnov (2018) document mispricings and arbitrage opportunities across exchanges for bitcoin.”