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Price Discovery of a Speculative Asset: Evidence from a Bitcoin Exchange

by Eric Ghysels 1,* and Giang Nguyen 2
1
Department of Economics and Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599, USA
2
Smeal College of Business, Pennsylvania State University, University Park, PA 16802, USA
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2019, 12(4), 164; https://doi.org/10.3390/jrfm12040164
Received: 28 September 2019 / Revised: 19 October 2019 / Accepted: 19 October 2019 / Published: 25 October 2019
(This article belongs to the Section Financial Markets)
We examine price discovery and liquidity provision in the secondary market for bitcoin—an asset with a high level of speculative trading. Based on BTC-e’s full limit order book over the 2013–2014 period, we find that order informativeness increases with order aggressiveness within the first 10 tiers, but that this pattern reverses in outer tiers. In a high volatility environment, aggressive orders seem to be more attractive to informed agents, but market liquidity migrates outward in response to the information asymmetry. We also find support to the Markovian learning assumption often made in theoretical models of limit order markets. View Full-Text
Keywords: Bitcoin; cryptocurrency; price discovery; liquidity; price impact; limit order book market; adverse selection; learning Bitcoin; cryptocurrency; price discovery; liquidity; price impact; limit order book market; adverse selection; learning
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Ghysels, E.; Nguyen, G. Price Discovery of a Speculative Asset: Evidence from a Bitcoin Exchange. J. Risk Financial Manag. 2019, 12, 164.

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