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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Adverse selection in cryptocurrency markets
Organization Unit
  • Erdinc Akyildirim
  • Shaen Corbet
  • Murat Tiniç
  • Ahmet Sensoy
Item Subtype Original Work
Refereed Yes
Status Published in final form
  • English
Journal Title The journal of financial research
Publisher Wiley-Blackwell Publishing, Inc.
Geographical Reach international
ISSN 0270-2592
Volume 46
Number 2
Page Range 497 - 546
Date 2023
Abstract Text In this article we investigate the influence that information asymmetry may have on future volatility, liquidity, market toxicity, and returns within cryptocurrency markets. We use the adverse-selection component of the effective spread as a proxy for overall information asymmetry. Using order and trade data from the Bitfinex exchange, we first document statistically significant adverse-selection costs for major cryptocurrencies. Also, our results suggest that adverse-selection costs, on average, correspond to 10% of the estimated effective spread, indicating an economically significant impact of adverse-selection risk on transaction costs in cryptocurrency markets. Finally, we document that adverse-selection costs are important predictors of intraday volatility, liquidity, market toxicity, and returns.
Free access at Official URL
Digital Object Identifier 10.1111/jfir.12317
Other Identification Number merlin-id:23034
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