Investigating the Efficiency of Bitcoin Futures in Price Discovery

Prashant Sharma, Prashant Gupta, Dinesh Kumar Sharma and Gaurav Agarwal
Additional contact information
Prashant Sharma: Indian Institute of Health Management Research, Jaipur, Rajasthan, India; Jiwaji University, Gwalior, Madhya Pradesh, India
Prashant Gupta: Indian Institute of Management, Trichy, Tamil Nadu, India
Dinesh Kumar Sharma: School of Management, Gautam Buddha University, Noida, Uttar Pradesh, India
Gaurav Agarwal: Atal Bihari Vajpayee-Indian Institute of Information Technology and Management, Gwalior, Madhya Pradesh, India

International Journal of Economics and Financial Issues, 2022, vol. 12, issue 3, 104-109

Abstract: 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.

Keywords: Bitcoin; Efficiency of Bitcoin Futures; Error Correction Mechanism; Johansen Co-integration test; Price Discovery (search for similar items in EconPapers)
JEL-codes: C01 C22 D53 G13 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econjournals.com/index.php/ijefi/article/download/12783/6787 (application/pdf)
https://www.econjournals.com/index.php/ijefi/article/view/12783 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2022-03-12

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().