Nothing but Noise? Price Discovery between Cryptocurrency Exchanges

Abstract

We examine the price discovery contributions of cryptocurrency exchanges in the presence of market microstructure noise. Cryptocurrency markets exhibit a decisively higher level of microstructure noise compared to the New York Stock Exchange or NASDAQ. Therefore, traditional measures of price discovery are potentially biased. To overcome this concern, we draw on the information leadership share (ILS) proposed by Putninš [2013, J.Emp.Fin]. Based on the ILS, we find that Bitfinex is the leader in the price discovery process. Our results highlight the importance of accounting for different levels of noise when evaluating price discovery contributions