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Trading and arbitrage in cryptocurrency markets

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  • Makarov, Igor
  • Schoar, Antoinette

Abstract

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 idiosyncratic component. The common component explains 80% of bitcoin returns. The idiosyncratic components help explain arbitrage spreads between exchanges.

Suggested Citation

  • Makarov, Igor & Schoar, Antoinette, 2020. "Trading and arbitrage in cryptocurrency markets," Journal of Financial Economics, Elsevier, vol. 135(2), pages 293-319.
    • Handle: RePEc:eee:jfinec:v:135:y:2020:i:2:p:293-319
    DOI: 10.1016/j.jfineco.2019.07.001
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    More about this item

    Keywords

    Cryptocurrencies; Bitcoin; Arbitrage; Price impact; Capital controls;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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