The impact of margin trading and short selling by retail investors on market price efficiency: Empirical evidence from bitcoin exchanges

Jan-Oliver Strych

Finance Research Letters, 2022, vol. 47, issue PB

Abstract: I exploit the high fraction of retail investors in the early years of Bitcoin and the introduction of margin trading and short selling by the Bitcoin Exchange Kraken to apply a difference-in-differences approach. I document that the potential composite use of margin trading and short selling is associated with lower market price efficiency. Moreover, I find that more likely short selling relative to margin trading is positively related to market efficiency indicating that margin trading causes their negative composite effect. If margin traders are more likely sophisticated retail investors, the negative impact of margin trading is less pronounced.

Keywords: Market price efficiency; Retail investors; Short selling; Margin trading; Bitcoin (search for similar items in EconPapers)
JEL-codes: G14 G23 G51 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000186

DOI: 10.1016/j.frl.2022.102689

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