Dynamic efficiency and arbitrage potential in Bitcoin: A long-memory approach |
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| Institution: | 1. Faculty of Business and Management, University of Balamand, Balamand, Lebanon;2. Cyprus International Institute of Management (CIIM), Nicosia, Cyprus;3. Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 11000 Prague, Czech Republic;4. Czech Academy of Sciences, Institute of Information Theory and Automation, Pod Vodarenskou vezi 4, 18200, Prague, Czech Republic;5. Istanbul Medeniyet University, Istanbul, Turkey;6. University of Social Sciences, Lodz, Poland;7. Institute of Management Technology Nagpur, Katol Road, Nagpur, Maharashtra 441502, India;1. School of Economics, Huazhong University of Science and Technology, Wuhan, China;2. Southampton Business School, University of Southampton, Southampton, UK;3. Trinity College, University of Cambridge, Cambridge, UK;1. 2300 avenue des moulins, 3400 Montpellier, France;2. Montpellier Business School, Montpellier, France;3. Indian Institute of Management Raipur, Chhattisgarh, India |
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| Abstract: | Employing a long-memory approach, we provide a study of the evolution of informational efficiency in five major Bitcoin markets and its influence on cross-market arbitrage. While all the markets are close to full informational efficiency over the whole sample period, the degree of market efficiency varies across markets and over time. The cross-market discrepancy in market efficiency gradually vanishes, suggesting the segmented markets are developing to a consensus where all markets are equally efficient. Through a fractionally cointegrated vector autoregressive (FCVAR) model we show that when the efficiency in Bitcoin/USD and Bitcoin/AUD markets improves the cross-market arbitrage potential narrows, whereas it widens when the efficiency in Bitcoin/CAD, Bitcoin/EUR, and Bitcoin/GBP markets improves. A battery of robustness checks reassure our main findings. |
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