Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets

Lee, Seungho; Switzer, Lorne N.; Meslmani, Nabil El

doi:10.1016/j.ribaf.2020.101200

Cited by 22 publications

(17 citation statements)

References 54 publications

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“…Based on the fact the Bitcoin market became a common financial market, researchers also investigated on the issue PLOS ONE of whether Bitcoin market was predictable. Despite Urquhart [21] argued the weak form efficiency, numerous studies found empirical evidence on the predictability of Bitcoin return from several aspects, i.e., trading volume, exchange rates, mining rate, revenue, as well as several market indexes [45][46][47][48][49][50][51][52][53][54], etc. Based on the time-varying long memory properties in Bitcoin market, Bariviera et al [55] investigated the Bitcoin volatility forecasting.…”

Section: Literature Reviewmentioning

confidence: 99%

Investor attention and cryptocurrency: Evidence from the Bitcoin market

Zhu

Zhang

et al. 2021

PLoS ONE

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This paper adds to the growing literature of cryptocurrency and behavioral finance. Specifically, we investigate the relationships between the novel investor attention and financial characteristics of Bitcoin, i.e., return and realized volatility, which are the two most important characteristics of one certain asset. Our empirical results show supports in the behavior finance area and argue that investor attention is the granger cause to changes in Bitcoin market both in return and realized volatility. Moreover, we make in-depth investigations by exploring the linear and non-linear connections of investor attention on Bitcoin. The results indeed demonstrate that investor attention shows sophisticated impacts on return and realized volatility of Bitcoin. Furthermore, we conduct one basic and several long horizons out-of-sample forecasts to explore the predictive ability of investor attention. The results show that compared with the traditional historical average benchmark model in forecasting technologies, investor attention improves prediction accuracy in Bitcoin return. Finally, we build economic portfolios based on investor attention and argue that investor attention can further generate significant economic values. To sum up, investor attention is a non-negligible pricing factor for Bitcoin asset.

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Section: Literature Reviewmentioning

confidence: 99%

Investor attention and cryptocurrency: Evidence from the Bitcoin market

Zhu

Zhang

et al. 2021

PLoS ONE

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“…It should be noted that the cryptocurrency market is tightly interdependent to commodity markets (Ji et al, 2019;Panagiotidis et al, 2019), derivative markets (Akyildirim et al, 2020), bond and foreign exchange markets (Corbet et al, 2018). Furthermore, Bitcoin COVID-19 pandemic futures have been traded in Chicago Mercantile Exchange and the Chicago Board Options Exchange since December 2017 and these innovative products have raised interest by investors (Lee et al, 2020). Thus, a shock stemmed in the cryptocurrency market can spread to the financial markets with its detrimental effects.…”

Section: Introductionmentioning

confidence: 99%

Cryptocurrency connectedness nexus the COVID-19 pandemic: evidence from time-frequency domains

Polat

GÜNAY

2021

SEF

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Purpose The purpose of this study is to investigate volatility connectedness between major cryptocurrencies by the virtue of market capitalization. In this context, this paper implements the frequency connectedness approach of Barunik and Krehlik (2018) and to measure short-, medium- and long-term connectedness between realized volatilities of cryptocurrencies. Additionally, this paper analyzes network graphs of directional TO/FROM spillovers before and after the announcement of the COVID-19 pandemic by the World Health Organization. Design/methodology/approach In this study, we examine the volatility connectedness among eight major cryptocurrencies by the virtue of market capitalization by using the frequency connectedness approach over the period July 26, 2017 and October 28, 2020. To this end, this paper computes short-, medium- and long-cycle overall spillover indexes on different frequency bands. All indexes properly capture well-known events such as the 2018 cryptocurrency market crash and COVID-19 pandemic and markedly surge around these incidents. Furthermore, owing to notably increased volatilities after the official announcement of the COVID-19 pandemic, this paper concentrates on network connectedness of volatility spillovers for two distinct periods, July 26, 2017–March 10, 2020 and March 11, 2020–October 28, 2020, respectively. In line with the related studies, major cryptocurrencies stand at the epicenter of the connectedness network and directional volatility spillovers dramatically intensify based on the network analysis. Findings Overall spillover indexes have fluctuated between 54% and 92% in May 2018 and April 2020. The indexes gradually escalated till November 9, 2018 and surpassed their average values (71.92%, 73.66% and 74.23%, respectively). Overall spillover indexes dramatically plummeted till January 2019 and reached their troughs (54.04%, 57.81% and 57.81%, respectively). Etherium catalyst the highest sum of volatility spillovers to other cryptocurrencies (94.2%) and is followed by Litecoin (79.8%) and Bitcoin (76.4%) before the COVID-19 announcement, whereas Litecoin becomes the largest transmitter of total volatility (89.5%) and followed by Bitcoin (89.3%) and Etherium (88.9%). Except for Etherium, the magnitudes of total volatility spillovers from each cryptocurrency notably increase after – COVID-19 announcement period. The medium-cycle network topology of pairwise spillovers indicates that the largest transmitter of total volatility spillover is Litecoin (89.5%) and followed by Bitcoin (89.3%) and Etherium (88.9%) before the COVID-19 announcement. Etherium keeps its leading role of transmitting the highest sum of volatility spillovers (89.4%), followed by Bitcoin (88.9%) and Litecoin (88.2%) after the COVID-19 announcement. The largest transmitter of total volatility spillovers is Etherium (95.7%), followed by Litecoin (81.2%) and Binance Coin (75.5%) for the long-cycle connectedness network in the before-COVID-19 announcement period. These nodes keep their leading roles in propagating volatility spillover in the latter period with the following sum of spillovers (Etherium-89.5%, Bitcoin-88.9% and Litecoin-88.1%, respectively). Research limitations/implications The study can be extended by including more cryptocurrencies and high-frequency data. Originality/value The study is original and contributes to the extant literature threefold. First, this paper identifies connectedness between major cryptocurrencies on different frequency bands by using a novel methodology. Second, this paper estimates volatility connectedness between major cryptocurrencies before and after the announcement of the COVID-19 pandemic and thereby to concentrate on its impact on the cryptocurrency market. Third, this paper plots network graphs of volatility connectedness and herewith picture the intensification of cryptocurrencies due to a major financial distress event.

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“…Among these papers, find that BitMEX perpetual swaps lead prices on major bitcoin spot exchanges indicating its strong price discovery and higher informational efficiency. Unlike existing studies, Lee et al (2020) examine the markets in terms of arbitrage efficiency and find that futures prices are biased predictors of future spot prices. Entrop et al (2020) go one step further and investigate the factors that may impact bitcoin price discovery in both spot and futures markets and find a significant time-variation in their contribution to price discovery of both markets.…”

Section: Introductionmentioning

confidence: 94%

Information transmission between bitcoin derivatives and spot markets: high-frequency causality analysis with Fourier approximation

Çağlı

Mandaci

2021

Econ Bus Lett

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This paper examines information transmission between Bitcoin derivatives and spot exchanges using 15-minutes interval data over May 2016 - September 2020. We employ a novel econometric framework with Fourier approximation, taking structural shifts in causal linkages, on the prices, returns, and volatilities of BitMEX, the derivatives market, and five other major spot exchanges, Coinbase, Bitstamp, Kraken, CEX.io, and Poloniex. Overall, the results provide robust evidence of information flow between the derivatives and spot exchanges, implying the markets react to new information simultaneously. The results are of importance for investors conducting portfolio allocation exercises and risk management strategies.

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Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets

Cited by 22 publications

References 54 publications

Investor attention and cryptocurrency: Evidence from the Bitcoin market

Investor attention and cryptocurrency: Evidence from the Bitcoin market

Cryptocurrency connectedness nexus the COVID-19 pandemic: evidence from time-frequency domains

Information transmission between bitcoin derivatives and spot markets: high-frequency causality analysis with Fourier approximation

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