Price Discovery of a Speculative Asset: Evidence from a Bitcoin Exchange

Eric Ghysels and Giang Nguyen
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Eric Ghysels: Department of Economics and Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599, USA
Giang Nguyen: Smeal College of Business, Pennsylvania State University, University Park, PA 16802, USA

JRFM, 2019, vol. 12, issue 4, 1-26

Abstract: We examine price discovery and liquidity provision in the secondary market for bitcoin—an asset with a high level of speculative trading. Based on BTC-e’s full limit order book over the 2013–2014 period, we find that order informativeness increases with order aggressiveness within the first 10 tiers, but that this pattern reverses in outer tiers. In a high volatility environment, aggressive orders seem to be more attractive to informed agents, but market liquidity migrates outward in response to the information asymmetry. We also find support to the Markovian learning assumption often made in theoretical models of limit order markets.

Keywords: Bitcoin; cryptocurrency; price discovery; liquidity; price impact; limit order book market; adverse selection; learning (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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