Abstract
This paper examines price discovery and liquidity provision in the secondary market for bitcoin -- an asset that has no observable fundamentals and is associated with a high level of speculative trading. Based on a comprehensive dataset of the full limit order book of BTC-e over the 2013-2014 period, we find that order informativeness generally increases with order aggressiveness within the first 10 tiers, but that this pattern reverses in the outer layers of the book. In a high volatility environment, aggressive orders seem to be more attractive to informed agents, as reflected by the increased information content of such orders, although market liquidity appears to migrate outward in response to the information asymmetry. We also find that learning in the market does not seem to depend on the history of the limit order book, which lends some initial support to the Markovian learning assumption often made in theoretical models of limit order markets.
Highlights
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The main objective of this paper is to study the extent to which limit order book activities contribute to the dynamics of bitcoin price
RRS2018’s numerical results for the case in which adverse section increases due to a large value shock indicate that liquidity at or near the market could improve. This is because informed traders are likely to increase their trading and aggressive limit order activities, thereby raising liquidity provision at more aggressive price levels, which in turn could outweigh the reduction in uninformed liquidity
Summary
Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel. Suggested Citation: Ghysels, Eric; Nguyen, Giang H. 1911-8074, MDPI, Basel, Vol 12, Iss. 4, pp. Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen. Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Received: 28 September 2019; Accepted: 19 October 2019; Published: 25 October 2019
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