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The impact of margin trading and short selling by retail investors on market price efficiency: Empirical evidence from bitcoin exchanges

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  • Strych, Jan-Oliver

Abstract

I exploit the high fraction of retail investors in the early years of Bitcoin and the introduction of margin trading and short selling by the Bitcoin Exchange Kraken to apply a difference-in-differences approach. I document that the potential composite use of margin trading and short selling is associated with lower market price efficiency. Moreover, I find that more likely short selling relative to margin trading is positively related to market efficiency indicating that margin trading causes their negative composite effect. If margin traders are more likely sophisticated retail investors, the negative impact of margin trading is less pronounced.

Suggested Citation

  • Strych, Jan-Oliver, 2022. "The impact of margin trading and short selling by retail investors on market price efficiency: Empirical evidence from bitcoin exchanges," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000186
    DOI: 10.1016/j.frl.2022.102689
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    More about this item

    Keywords

    Market price efficiency; Retail investors; Short selling; Margin trading; Bitcoin;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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