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.
- Language
-
Englisch
- Bibliographic citation
-
Series: CFS Working Paper Series ; No. 616
- Classification
-
Wirtschaft
Financial Economics: General
General Financial Markets: General (includes Measurement and Data)
Information and Market Efficiency; Event Studies; Insider Trading
- Subject
-
Arbitrage
Settlement Latency
Distributed Ledger
Blockchain
- Event
-
Geistige Schöpfung
- (who)
-
Hautsch, Nikolaus
Scheuch, Christoph
Voigt, Stefan
- Event
-
Veröffentlichung
- (who)
-
Goethe University Frankfurt, Center for Financial Studies (CFS)
- (where)
-
Frankfurt a. M.
- (when)
-
2018
- Handle
- URN
-
urn:nbn:de:hebis:30:3-480536
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Hautsch, Nikolaus
- Scheuch, Christoph
- Voigt, Stefan
- Goethe University Frankfurt, Center for Financial Studies (CFS)
Time of origin
- 2018
Other Objects (12)
Diplomakte Stefan Voigt
Determinant of Social Norms
How to measure the rule of law
The (economic) effects of lay participation in courts: a cross-country analysis
Taking the Rule of Law Seriously – How the EU Could Foster Its Own Values
Im Zwischenreich
The economic effects of direct democracy: A cross-country assessment
Does arbitration blossom when state courts are bad?
Edition dunkle Kunst : Kurzgeschichten
Die unabhängige Justiz – eine vernachlässigte Determinante zur Erklärung der Zentralbankunabhängigkeit?
Positive constitutional economics II: a survey of recent developments
The (economic) effects of lay participation in courts: a cross-country analysis
Diplomakte Stefan Voigt
Determinant of Social Norms
How to measure the rule of law
The (economic) effects of lay participation in courts: a cross-country analysis
Taking the Rule of Law Seriously – How the EU Could Foster Its Own Values
Im Zwischenreich
The economic effects of direct democracy: A cross-country assessment
Does arbitration blossom when state courts are bad?
Edition dunkle Kunst : Kurzgeschichten
Die unabhängige Justiz – eine vernachlässigte Determinante zur Erklärung der Zentralbankunabhängigkeit?
Positive constitutional economics II: a survey of recent developments
The (economic) effects of lay participation in courts: a cross-country analysis
Diplomakte Stefan Voigt
Determinant of Social Norms
How to measure the rule of law
The (economic) effects of lay participation in courts: a cross-country analysis
Taking the Rule of Law Seriously – How the EU Could Foster Its Own Values
Im Zwischenreich
The economic effects of direct democracy: A cross-country assessment
Does arbitration blossom when state courts are bad?
Edition dunkle Kunst : Kurzgeschichten
Die unabhängige Justiz – eine vernachlässigte Determinante zur Erklärung der Zentralbankunabhängigkeit?
Positive constitutional economics II: a survey of recent developments