Does Governance Have a Role in Pricing? Cross-Country Evidence from Bitcoin Markets

31 Pages Posted: 28 Sep 2015  

Robert Viglione

University of South Carolina - Department of Finance

Date Written: September 25, 2015

Abstract

I investigate the effects of social technologies related to governance on cross-country differences in Bitcoin prices. Investors pay a persistent premium over global prices in countries with less economic freedom, particularly when there exist foreign exchange and capital controls limiting investment freedom. Using the Heritage Foundation’s Economic Freedom Index and associated macroeconomic time-series, I find that a 10 point increase in the index leads to a 7.5 percent decrease in premium. Of the component indices, Financial Freedom has the largest marginal effect in that a 10 point improvement in its value decreases prices by 5.3 percent. From this perspective, Bitcoin can be seen as a disaster asset offering a new channel to evade domestic jurisdiction repression, a process resembling imperfect markets for catastrophe insurance inducing unexpectedly high premiums. Finally, a natural question arises as to whether this finding can be extended to other assets, in other words, whether endogenous social technologies effect systemic risk and manifest in the pricing kernel.

Keywords: international finance, asset pricing, foreign exchange, bitcoin, cryptofinance

JEL Classification: G15, G28

Suggested Citation

Viglione, Robert, Does Governance Have a Role in Pricing? Cross-Country Evidence from Bitcoin Markets (September 25, 2015). Available at SSRN: https://ssrn.com/abstract=2666243 or http://dx.doi.org/10.2139/ssrn.2666243

Robert Viglione (Contact Author)

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

Paper statistics

Downloads
840
Rank
21,530
Abstract Views
4,217