Information Transmission across Cryptocurrency Markets and the Role of the Blockchain

42 Pages Posted: 6 May 2020

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics

Date Written: April 11, 2020

Abstract

The time between order submission and order confirmation is crucial for high frequency traders as they risk slippage when latency is too high. We hypothesize that high latency in cryptocurrency markets implies correlations well below one across exchanges at high frequencies. To evaluate this conjecture, we measure the correlation of returns across exchanges at increasing sampling frequencies. Since all exchanges trade the same asset, correlations must eventually approach one. However, at high frequencies, correlations are close to zero. The correlation is approaching one after about 10 minutes which we link to the median confirmation time on the blockchain highlighting the importance of the underlying blockchain design. The analysis also shows considerable differences of cryptocurrency trading with stock market trading.

Keywords: Bitcoin, cryptocurrencies, blockchain, market efficiency, latency, sampling frequency

Suggested Citation

Baur, Dirk G. and Dimpfl, Thomas, Information Transmission across Cryptocurrency Markets and the Role of the Blockchain (April 11, 2020). Available at SSRN: https://ssrn.com/abstract=3573367 or http://dx.doi.org/10.2139/ssrn.3573367

Dirk G. Baur

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Thomas Dimpfl (Contact Author)

University of Tuebingen - Department of Statistics and Econometrics ( email )

Germany

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