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Price discovery on Bitcoin markets

Paolo Pagnottoni () and Thomas Dimpfl ()
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Paolo Pagnottoni: University of Pavia
Thomas Dimpfl: University of Tübingen

Digital Finance, 2019, vol. 1, issue 1, 139-161

Abstract: Abstract Trading of Bitcoin is spread about multiple venues where buying and selling is offered in various currencies. However, all exchanges trade one common good and by the law of one price, the different prices should not deviate in the long run. In this context, we are interested in which platform is the most important one in terms of price discovery. To this end, we use a pairwise approach accounting for a potential impact of exchange rates. The contribution to price discovery is measured by Hasbrouck’s and Gonzalo and Granger’s information share. We then derive an ordering with respect to the importance of each market which reveals that the Chinese OKCoin platform is the leader in price discovery of Bitcoin, followed by BTC China. Overall, the exchange rate is neither affected by Bitcoin trading nor does it contribute decisively to its price discovery.

Keywords: Price discovery; Bitcoin; Hasbrouck information shares (search for similar items in EconPapers)
JEL-codes: C58 C32 G23 (search for similar items in EconPapers)
Date: 2019
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