Price Discovery in Cryptocurrency Markets
Juan Plazuelo Pascual, Carlos Tardon Rubio, Juan Toro Cebada, Angel Hernando Veciana

TL;DR
This paper investigates how price discovery occurs across centralized and decentralized cryptocurrency markets, analyzing Ethereum and Bitcoin to understand lead-lag relationships, cointegration, and market efficiency.
Contribution
It introduces a comprehensive framework combining theoretical and empirical tools to compare price discovery in centralized exchanges, decentralized AMMs, and futures markets for ETH and BTC.
Findings
Centralized markets generally lead in ETH price discovery.
Futures markets tend to lead, but high volatility causes mixed results.
Decentralized AMMs show different dynamics compared to centralized exchanges.
Abstract
This document analyzes price discovery in cryptocurrency markets by comparing centralized and decentralized exchanges, as well as spot and futures markets. The study focuses first on Ethereum (ETH) and then applies a similar approach to Bitcoin (BTC). Chapter 1 outlines the theoretical framework, emphasizing the structural differences between centralized exchanges and decentralized finance mechanisms, especially Automated Market Makers (AMMs). It also explains how to construct an order book from a liquidity pool in a decentralized setting for comparison with centralized exchanges. Chapter 2 describes the methodological tools used: Hasbrouck's Information Share, Gonzalo and Granger's Permanent-Transitory decomposition, and the Hayashi-Yoshida estimator. These are applied to explore lead-lag dynamics, cointegration, and price discovery across market types. Chapter 3 presents the empirical…
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Taxonomy
TopicsBlockchain Technology Applications and Security · Stock Market Forecasting Methods · Financial Markets and Investment Strategies
