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| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Adverse selection in cryptocurrency markets |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| 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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