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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 electronically before print/final form (Epub ahead of print)
  • English
Journal Title Journal of Financial Research
Geographical Reach international
Volume forthcoming
Page Range -
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.
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Digital Object Identifier 10.1111/jfir.12317
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