Efficiency dynamics across segmented Bitcoin markets: evidence from a decomposition strategy
Efficiency dynamics across segmented Bitcoin markets: evidence from a decomposition strategy
Heterogeneity in informational inefficiency in a cross-market virtual currency, such as Bitcoin, allows for the extraction of differential gains from a portfolio of investments over time. In this paper, we measure inefficiency in five country/region segmented Bitcoin markets based on dynamic estimation of the fractional integration order of their price series. Results reveal a time-varying and country-specific pattern of inefficiency in the five Bitcoin markets, although the degree of inefficiency in each market has declined over time. Further, we introduce a new decomposition method to disentangle components of the inefficiency degree. Results suggest that the total variation around the convergence benchmark has fallen, whilst the proportion due to the difference between convergence and efficiency has risen from approximately 77% in 2013 to almost 100% in 2020. Besides, evidence of convergence emerges until the outbreak of COVID-19, beyond which the inefficiency degree diverges measurably. We show that Bitcoin markets have become more efficient after the first-wave COVID era and then the nature of market segmentation has played a less important role, levelling the cross-market difference and thus reducing the potential for arbitrage.
Bitcoin, COVID-19 epidemic, Long-memory, Market efficiency, Market segmentation
Duan, Kun
054ecbe5-11bf-4e7d-ad5d-b5dcc2ccd786
Gao, Yang
f97a309e-6a1b-49a8-bab0-3cdd431c3ece
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Satchell, Stephen
c4f950e7-8959-4645-a4e5-765e360432ae
March 2023
Duan, Kun
054ecbe5-11bf-4e7d-ad5d-b5dcc2ccd786
Gao, Yang
f97a309e-6a1b-49a8-bab0-3cdd431c3ece
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Satchell, Stephen
c4f950e7-8959-4645-a4e5-765e360432ae
Duan, Kun, Gao, Yang, Mishra, Tapas and Satchell, Stephen
(2023)
Efficiency dynamics across segmented Bitcoin markets: evidence from a decomposition strategy.
Journal of International Financial Markets, Institutions and Money, 83, [101742].
(doi:10.1016/j.intfin.2023.101742).
Abstract
Heterogeneity in informational inefficiency in a cross-market virtual currency, such as Bitcoin, allows for the extraction of differential gains from a portfolio of investments over time. In this paper, we measure inefficiency in five country/region segmented Bitcoin markets based on dynamic estimation of the fractional integration order of their price series. Results reveal a time-varying and country-specific pattern of inefficiency in the five Bitcoin markets, although the degree of inefficiency in each market has declined over time. Further, we introduce a new decomposition method to disentangle components of the inefficiency degree. Results suggest that the total variation around the convergence benchmark has fallen, whilst the proportion due to the difference between convergence and efficiency has risen from approximately 77% in 2013 to almost 100% in 2020. Besides, evidence of convergence emerges until the outbreak of COVID-19, beyond which the inefficiency degree diverges measurably. We show that Bitcoin markets have become more efficient after the first-wave COVID era and then the nature of market segmentation has played a less important role, levelling the cross-market difference and thus reducing the potential for arbitrage.
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Bitcoin_Market_Efficiency7_Jan_2022
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Accepted/In Press date: 24 January 2023
e-pub ahead of print date: 28 January 2023
Published date: March 2023
Additional Information:
Funding Information:
We thank the editor, Jonathan Batten, and guest editors, Gady Jacoby and Zhenyu Wu, and three anonymous referees for valuable comments and suggestions. Yang Gao gratefully acknowledges the financial support from the National Natural Science Foundation of China (Grant No. 72103070 ). Kun Duan gratefully acknowledges the financial support from Huazhong University of Science and Technology Double First-Class Funds for Humanities and Social Sciences (Peikang Chang Institute for Development Studies; Research Center for Innovation and Development).
Publisher Copyright:
© 2023 Elsevier B.V.
Keywords:
Bitcoin, COVID-19 epidemic, Long-memory, Market efficiency, Market segmentation
Identifiers
Local EPrints ID: 476984
URI: http://eprints.soton.ac.uk/id/eprint/476984
ISSN: 1042-4431
PURE UUID: 0c87a40a-3828-4719-9226-1dd0f7745045
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Date deposited: 23 May 2023 16:32
Last modified: 17 Mar 2024 03:36
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Author:
Kun Duan
Author:
Yang Gao
Author:
Stephen Satchell
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