Trade informativeness and liquidity in Bitcoin markets.

Liquid markets are driven by information asymmetries and the injection of new information in trades into market prices. Where market matching uses an electronic limit order book (LOB), limit orders traders may make suboptimal price and trade decisions based on new but incomplete information arriving...

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Autor principal:	J Christopher Westland
Formato:	article
Lenguaje:	EN
Publicado:	Public Library of Science (PLoS) 2021
Materias:	Medicine R Science Q
Acceso en línea:	https://doaj.org/article/8b16ef8770c24a63ba1a1df8b1f45bc3
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spelling	oai:doaj.org-article:8b16ef8770c24a63ba1a1df8b1f45bc32021-12-02T20:18:12ZTrade informativeness and liquidity in Bitcoin markets.1932-620310.1371/journal.pone.0255515https://doaj.org/article/8b16ef8770c24a63ba1a1df8b1f45bc32021-01-01T00:00:00Zhttps://doi.org/10.1371/journal.pone.0255515https://doaj.org/toc/1932-6203Liquid markets are driven by information asymmetries and the injection of new information in trades into market prices. Where market matching uses an electronic limit order book (LOB), limit orders traders may make suboptimal price and trade decisions based on new but incomplete information arriving with market orders. This paper measures the information asymmetries in Bitcoin trading limit order books on the Kraken platform, and compares these to prior studies on equities LOB markets. In limit order book markets, traders have the option of waiting to supply liquidity through limit orders, or immediately demanding liquidity through market orders or aggressively priced limit orders. In my multivariate analysis, I control for volatility, trading volume, trading intensity and order imbalance to isolate the effect of trade informativeness on book liquidity. The current research offers the first empirical study of Glosten (1994) to yield a positive, and credibly large transaction cost parameter. Trade and LOB datasets in this study were several orders of magnitude larger than any of the prior studies. Given the poor small sample properties of GMM, it is likely that this substantial increase in size of datasets is essential for validating the model. The research strongly supports Glosten's seminal theoretical model of limit order book markets, showing that these are valid models of Bitcoin markets. This research empirically tested and confirmed trade informativeness as a prime driver of market liquidity in the Bitcoin market.J Christopher WestlandPublic Library of Science (PLoS)articleMedicineRScienceQENPLoS ONE, Vol 16, Iss 8, p e0255515 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Medicine R Science Q
spellingShingle	Medicine R Science Q J Christopher Westland Trade informativeness and liquidity in Bitcoin markets.
description	Liquid markets are driven by information asymmetries and the injection of new information in trades into market prices. Where market matching uses an electronic limit order book (LOB), limit orders traders may make suboptimal price and trade decisions based on new but incomplete information arriving with market orders. This paper measures the information asymmetries in Bitcoin trading limit order books on the Kraken platform, and compares these to prior studies on equities LOB markets. In limit order book markets, traders have the option of waiting to supply liquidity through limit orders, or immediately demanding liquidity through market orders or aggressively priced limit orders. In my multivariate analysis, I control for volatility, trading volume, trading intensity and order imbalance to isolate the effect of trade informativeness on book liquidity. The current research offers the first empirical study of Glosten (1994) to yield a positive, and credibly large transaction cost parameter. Trade and LOB datasets in this study were several orders of magnitude larger than any of the prior studies. Given the poor small sample properties of GMM, it is likely that this substantial increase in size of datasets is essential for validating the model. The research strongly supports Glosten's seminal theoretical model of limit order book markets, showing that these are valid models of Bitcoin markets. This research empirically tested and confirmed trade informativeness as a prime driver of market liquidity in the Bitcoin market.
format	article
author	J Christopher Westland
author_facet	J Christopher Westland
author_sort	J Christopher Westland
title	Trade informativeness and liquidity in Bitcoin markets.
title_short	Trade informativeness and liquidity in Bitcoin markets.
title_full	Trade informativeness and liquidity in Bitcoin markets.
title_fullStr	Trade informativeness and liquidity in Bitcoin markets.
title_full_unstemmed	Trade informativeness and liquidity in Bitcoin markets.
title_sort	trade informativeness and liquidity in bitcoin markets.
publisher	Public Library of Science (PLoS)
publishDate	2021
url	https://doaj.org/article/8b16ef8770c24a63ba1a1df8b1f45bc3
work_keys_str_mv	AT jchristopherwestland tradeinformativenessandliquidityinbitcoinmarkets
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Trade informativeness and liquidity in Bitcoin markets.

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