Efficiency dynamics across segmented Bitcoin Markets: Evidence from a decomposition strategy

Kun Duan, Yang Gao, Tapas Mishra and Stephen Satchell

Journal of International Financial Markets, Institutions and Money, 2023, vol. 83, issue C

Abstract: Heterogeneity in informational inefficiency in a cross-market virtual currency, such as Bitcoin, allows for the extraction of differential gains from a portfolio of investments over time. In this paper, we measure inefficiency in five country/region segmented Bitcoin markets based on dynamic estimation of the fractional integration order of their price series. Results reveal a time-varying and country-specific pattern of inefficiency in the five Bitcoin markets, although the degree of inefficiency in each market has declined over time. Further, we introduce a new decomposition method to disentangle components of the inefficiency degree. Results suggest that the total variation around the convergence benchmark has fallen, whilst the proportion due to the difference between convergence and efficiency has risen from approximately 77% in 2013 to almost 100% in 2020. Besides, evidence of convergence emerges until the outbreak of COVID-19, beyond which the inefficiency degree diverges measurably. We show that Bitcoin markets have become more efficient after the first-wave COVID era and then the nature of market segmentation has played a less important role, levelling the cross-market difference and thus reducing the potential for arbitrage.

Keywords: Bitcoin; Long-memory; Market efficiency; Market segmentation; COVID-19 epidemic (search for similar items in EconPapers)
JEL-codes: G01 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:83:y:2023:i:c:s1042443123000100

DOI: 10.1016/j.intfin.2023.101742

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