An analysis of price discovery between Bitcoin futures and spot markets

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.

The determinants of price discovery on bitcoin markets

“…Corbet et al (2018), and Baur and Dimpfl (2019) explore price discovery leadership using high‐frequency transaction data and find that the spot market incorporates information into prices first and thus dominates in terms of price discovery. In contrast, using daily data, Kapar and Olmo (2019) find that the futures market is the price discovery leader. To the best of our knowledge, the second question on determinants of price discovery for regulated bitcoin futures has not been addressed yet.…”

Volatility spillover effects in leading cryptocurrencies: A BEKK-MGARCH analysis

“…The literature on cryptocurrencies has rapidly emerged. For instance, the price discovery process of Bitcoin has been investigated by, e.g., Brandvold et al [2015], Corbet, Lucey, Urquhart, and Yarovaya [2018] and Kapar and Olmo [2018], the existence of bubbles in cryptocurrencies has been examined by, e.g., Cheah and Fry [2015], Cheung et al [2015], Fry and Cheah [2016] and , and the existence of frequent structural breaks in Bitcoin returns has been investigated by Thies and Molnár [2018], while the volatility of cryptocurrency price returns has been studied by Katsiampa [2017], Ardia et al [2018], Phillip et al [2018], Baur and Dimpfl [2018], Chaim and Laurini [2018] and Troster et al [2018], among others. Nevertheless, whereas the potential for market manipulation appears to have been broadly identified in cryptocurrency crosscorrelations and market interdependencies (see, e.g., Griffins and Shams [2018] and Gandal et al [2018]), interdependencies within cryptocurrency markets continue to remain relatively under-explored.…”

Portfolio optimization in the era of digital financialization using cryptocurrencies

“…They further discussed that the characteristics of the risk and return, and the inverse correlation with other currencies could make Bitcoin, a potentially viable portfolio investment. Researchers undertook further research, on the efficiency of the cryptocurrencies ( Tran and Leirvik, 2020 ; Urquhart, 2016 ; Hu et al., 2019 ), the price discovery ( Kapar and Olmo, 2019 ), volatility ( Ardia et al., 2019 ; Baur and Dimpfl, 2018 ) and the conditional tail-risk ( Borri, 2019 ), are some of the contributions of the digital currencies, towards market efficiency, pricing, and risk behavior.…”