TY  - UNPD
A1  - Hautsch, Nikolaus
A1  - Scheuch, Christoph
A1  - Voigt, Stefan
T1  - Limits to arbitrage in markets with stochastic settlement latency
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 616
N2  - 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.
T3  - CFS working paper series - 616 
KW  - Arbitrage
KW  - Settlement Latency
KW  - Distributed Ledger
KW  - Blockchain
Y1  - 2018
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/48053
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-480536
UR  - https://ssrn.com/abstract=3302159
IS  - December 3, 2018
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -