Investigating the Efficiency of Bitcoin Futures in Price Discovery
DOI:
https://doi.org/10.32479/ijefi.12783Keywords:
Bitcoin, Efficiency of Bitcoin Futures, Error Correction Mechanism, Johansen Co-integration test, Price DiscoveryAbstract
The present study investigates the efficiency of the Bitcoin futures in the price discovery process by assessing the lead-lag relationship between the futures and spot prices of Bitcoin. The study tests whether the Bitcoin futures market is leading the price discovery mechanism for the Bitcoin spot market. The study considers daily closing prices of both Bitcoin spot and future indices from December 12, 2017 to December 31, 2020. The stationarity of the two time-series variables is tested using Augmented Dickey-Fuller test while the long-run co-integrating relationship is tested using Johansen Co-integration test. To test the long-run causality, the Error Correction Mechanism framework (ECM) is used while the Wald test is applied to assess the short-run causality between the Bitcoin future and spot prices. The results of trace and max-eigen statistics indicate that there is long term co-integrating relationship between Bitcoin futures and Bitcoin spot markets. The negative significant coefficient of error correction term indicates that there is long-run causality from the Bitcoin futures towards the Bitcoin spot market. The significant Chi-square test statistics of the Wald test suggest that there is short-run causality from the Bitcoin futures towards the Bitcoin spot market. This shows that the Bitcoin futures market is acting as a leading indicator and the Bitcoin spot market as a lagging indicator. Thus, it is concluded that the price discovery is taking place between Bitcoin futures and the Bitcoin spot market. With the entrance of the new information in the cryptocurrency market, it is first observed in the Bitcoin futures followed by the Bitcoin spot prices.Downloads
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Published
2022-05-17
How to Cite
Sharma, P., Gupta, P., Sharma, D. K., & Agrawal, G. . (2022). Investigating the Efficiency of Bitcoin Futures in Price Discovery. International Journal of Economics and Financial Issues, 12(3), 104–109. https://doi.org/10.32479/ijefi.12783
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