Market Fragmentation and Price Efficiency: Evidence from Cryptocurrencies

Does market fragmentation enhance price efficiency? Predictions from theoretical models and empirical evidence remain mixed. We use cryptocurrency delistings and a major trading venue's sudden collapse to assess fragmentation's impact on efficiency. We find evidence that reduced fragmentation harms efficiency: after the venue's closure, efficiency declines by 86% of its pre-collapse standard deviation, and following a coin delisting, it drops by 57%. These findings support the view that fragmented markets enhance price efficiency.

Keywords: JEL Classification: D40, G14, G23 Market Fragmentation, Price Efficiency, Cryptocurrencies, fintech

JEL Classification: D40, G14, G23

Suggested Citation: Suggested Citation

Rowberry, Paige and Brogaard, Jonathan and Dyhrberg, Anne Haubo, Market Fragmentation and Price Efficiency: Evidence from Cryptocurrencies (February 05, 2025). Available at SSRN: https://ssrn.com/abstract=5126312 or http://dx.doi.org/10.2139/ssrn.5126312