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Cryptomarket Discounts

Last Updated on 10 February, 2024 by Rejaul Karim

In “Cryptomarket Discounts,” authors Nicola Borri and Kirill Shakhnov embark on an illuminating exploration of cryptocurrency market efficiency, specifically investigating the distribution of bitcoin prices across exchange-currency pairs over time.

By observing persistent disparities in relative bitcoin prices, termed as discounts, the study unveils a fascinating half-life of 1 day and a leptokurtic, right-skewed distribution with a notable standard deviation.

Furthermore, the research delves into the impact of market segmentation and local supply and demand shocks, particularly in regions with stringent capital controls, shedding light on location-specific mining activities and investor attention.

Through this multifaceted approach, the paper unravels the complexities of cryptocurrency pricing, offering insightful perspectives into limits to arbitrage and multi-market trading.

Abstract Of Paper

This paper studies the efficiency of the cryptocurrency market by looking at the distribution of bitcoin prices over time and across exchange-currency pairs. We document persistent differences in relative bitcoin prices (or discounts), with a half-life of 1 day, and a distribution which is leptokurtic, skewed to the right, with a standard deviation of 3.9%. The variability of discounts is larger in countries with tighter capital controls due to the combined effect of market segmentation and local supply and demand shocks, which we relate to location-specific mining activities and investor attention.

Original paper – Download PDF

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Author

Nicola Borri
LUISS University – Department of Economics and Finance

Kirill Shakhnov
University of Surrey

Conclusion

In conclusion, “Cryptomarket Discounts” by Nicola Borri and Kirill Shakhnov presents a pioneering analysis of the cryptocurrency market’s efficiency, unveiling persistent disparities in relative bitcoin prices, also known as discounts.

The study’s observation of a half-life of 1 day and a leptokurtic, right-skewed distribution with a substantial standard deviation sheds light on the nuances of cryptocurrency pricing dynamics.

Moreover, the research uncovers the greater variability of discounts in regions with tighter capital controls, attributed to market segmentation, as well as local supply and demand shocks influenced by location-specific mining activities and investor attention.

Through this comprehensive exploration, the authors offer valuable insights into the complex interplay of limits to arbitrage and multi-market trading within the cryptocurrency realm, laying the groundwork for further scholarly inquiry and practical applications.

Related Reading:

‘Know When to Hodl ’Em, Know When to Fodl ’Em’: An Investigation of Factor Based Investing in the Cryptocurrency Space

Trading volume and liquidity provision in cryptocurrency markets

FAQ

Q1: What is the main focus of the research paper “Cryptomarket Discounts” by Nicola Borri and Kirill Shakhnov?

A1: The main focus of the research paper is to study the efficiency of the cryptocurrency market by examining the distribution of bitcoin prices over time and across exchange-currency pairs. The authors specifically investigate persistent differences in relative bitcoin prices, referred to as discounts, and analyze the dynamics of these discounts in the cryptocurrency market.

Q2: What key findings are highlighted in the research regarding cryptocurrency discounts?

A2: The research highlights several key findings regarding cryptocurrency discounts, including:

  • Persistent differences in relative bitcoin prices (discounts) with a documented half-life of 1 day.
  • The distribution of discounts is characterized as leptokurtic, right-skewed, with a substantial standard deviation of 3.9%.
  • Greater variability of discounts in countries with tighter capital controls, attributed to the combined effects of market segmentation and local supply and demand shocks.
  • The influence of location-specific mining activities and investor attention on the observed local supply and demand shocks.

Q3: How does the research contribute to our understanding of cryptocurrency market efficiency?

A3: The research contributes to our understanding of cryptocurrency market efficiency by providing insights into the distribution and dynamics of bitcoin prices across different exchanges and currencies. The observed persistent differences in relative prices, along with their statistical characteristics, offer valuable information about the efficiency of the cryptocurrency market. Additionally, the study explores the impact of market segmentation, local supply and demand shocks, and external factors such as capital controls, providing a nuanced perspective on the factors influencing cryptocurrency pricing dynamics.

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