An analysis of price discovery between Bitcoin futures and spot markets
An analysis of price discovery between Bitcoin futures and spot markets
This paper analyzes the Bitcoin price discovery process. We collect data on futures and spot prices for the period December 2017 to May 2018 and compute Hasbrouck's information share and Gonzalo and Granger's common factor component to quantify the contribution of each market to the price discovery process. Both measures coincide in suggesting that the Bitcoin futures market dominates the price discovery process. We also find that both prices are driven by a common factor that is given by a weighted combination of the futures and spot market. Finally, we observe that deviations from the equilibrium condition equating the futures and spot log-price have predictive ability for the return on the Bitcoin spot price but not on the futures price.
Bitcoin, Cointegration, Information share, Permanent–transitory decomposition, Price discovery
62-64
Kapar, Burcu
92416c2b-880f-41a0-bf73-15042d9bf993
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
1 January 2019
Kapar, Burcu
92416c2b-880f-41a0-bf73-15042d9bf993
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Kapar, Burcu and Olmo, Jose
(2019)
An analysis of price discovery between Bitcoin futures and spot markets.
Economics Letters, 174, .
(doi:10.1016/j.econlet.2018.10.031).
Abstract
This paper analyzes the Bitcoin price discovery process. We collect data on futures and spot prices for the period December 2017 to May 2018 and compute Hasbrouck's information share and Gonzalo and Granger's common factor component to quantify the contribution of each market to the price discovery process. Both measures coincide in suggesting that the Bitcoin futures market dominates the price discovery process. We also find that both prices are driven by a common factor that is given by a weighted combination of the futures and spot market. Finally, we observe that deviations from the equilibrium condition equating the futures and spot log-price have predictive ability for the return on the Bitcoin spot price but not on the futures price.
Text
Bitcoin_FuturesPaper_final_revised
- Accepted Manuscript
More information
Accepted/In Press date: 26 October 2018
e-pub ahead of print date: 1 November 2018
Published date: 1 January 2019
Keywords:
Bitcoin, Cointegration, Information share, Permanent–transitory decomposition, Price discovery
Identifiers
Local EPrints ID: 426715
URI: http://eprints.soton.ac.uk/id/eprint/426715
ISSN: 0165-1765
PURE UUID: 0ab6b539-4db5-4b77-9ae9-67b5eaac7129
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Date deposited: 10 Dec 2018 17:32
Last modified: 16 Mar 2024 07:16
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Author:
Burcu Kapar
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