Arbeitspapier
Limits to arbitrage in markets with stochastic settlement latency
Distributed ledger technologies rely on consensus protocols confronting traders with random waiting times until the transfer of ownership is accomplished. This time consuming settlement process exposes arbitrageurs to price risk and imposes limits to arbitrage. We derive theoretical arbitrage boundaries under general assumptions and show that they increase with expected latency, latency uncertainty, spot volatility, and risk aversion. Using high-frequency data from the Bitcoin network, we estimate arbitrage boundaries due to settlement latency of on average 124 basis points, covering 88% of the observed cross-exchange price differences. Settlement through decentralized systems thus induces non-trivial frictions affecting market efficiency and price formation.
- Sprache
-
Englisch
- Erschienen in
-
Series: CFS Working Paper Series ; No. 616
- Klassifikation
-
Wirtschaft
Financial Economics: General
General Financial Markets: General (includes Measurement and Data)
Information and Market Efficiency; Event Studies; Insider Trading
- Thema
-
Arbitrage
Settlement Latency
Distributed Ledger
Blockchain
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Hautsch, Nikolaus
Scheuch, Christoph
Voigt, Stefan
- Ereignis
-
Veröffentlichung
- (wer)
-
Goethe University Frankfurt, Center for Financial Studies (CFS)
- (wo)
-
Frankfurt a. M.
- (wann)
-
2018
- Handle
- URN
-
urn:nbn:de:hebis:30:3-480536
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Hautsch, Nikolaus
- Scheuch, Christoph
- Voigt, Stefan
- Goethe University Frankfurt, Center for Financial Studies (CFS)
Entstanden
- 2018
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