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The Impact of the Order Flow on Cryptocurrency Pairs Price Change

Student: Ershov Mikhail

Supervisor: Dmitriy Potapov

Faculty: Faculty of Economics, Management, and Business Informatics

Educational Programme: Economics (Bachelor)

Final Grade: 10

Year of Graduation: 2020

The current study is aimed to analyze the impact of the order flow on changing the prices of cryptocurrency pairs. The order flow is formalized using both the quantity and volume of market orders. The work uses data on market orders with a tick frequency for the period 10.10.2018 - 11.27.2019 provided by the European cryptocurrency exchange. The initial sample consisted of sixteen pairs, but two (Bitcoin / US dollar and Bitcoin / Swiss franc) were included in the study sample, with the largest variation in the order flow variables. Based on the results of the work, 48 autoregressive models of distributed lags were evaluated: for 4 options for presenting the order flow with a 4-hour data aggregation step up to the daily frequency and with a different number of lags. As a result, statistically significant positive instantaneous effects of the order flow on changing the prices of cryptocurrency pairs were revealed, but negative significant effects were also observed. That is related to the behavioral aspect of investing. The explanatory power of models increased with decreasing data frequency. The results of the work can be used by market makers to adjust their market strategies.

Full text (added May 12, 2020)

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