Quantifying endogeneity of cryptocurrency markets. Issue 7 (3rd May 2022)

• Record Type: Journal Article
• Authors: Mark, Michael; Sila, Jan; Weber, Thomas A.
• Is Part Of: European journal of finance. Volume 28:Issue 7(2022)
• Page Start: 784
• Page End: 799
• Publication Date: 2022-05-03
• Subjects: Bitcoin -- branching ratio -- cryptocurrencies -- endogeneity -- Hawkes process -- market reflexivity -- trading behavior; Finance -- Periodicals; Finance -- Europe -- Periodicals; International finance -- Periodicals; 332.094
• DOI: 10.1080/1351847X.2020.1791925
• Languages: English
• ISSNs: 1351-847X

Abstract

Abstract : We construct a 'reflexivity' index to measure the activity generated endogenously within a market for cryptocurrencies. For this purpose, we fit a univariate self-exciting Hawkes process with two classes of parametric kernels to high-frequency trading data. A parsimonious model of both endogenous and exogenous dynamics enables a direct comparison with exchanges for traditional asset classes, in terms of identified branching ratios. We also formulate a 'Hawkes disorder problem, ' as generalization of the established Poisson disorder problem, and provide a simulation-based approach to determining an optimal observation horizon. Our analysis suggests that Bitcoin mid-price dynamics feature long-memory properties, well explained by the power-law kernel, at a level of criticality similar to fiat-currency markets.