Does Bitcoin futures trading reduce the normal and jump volatility in the spot market? Evidence from GARCH-jump models

Chuanhai Zhang, Haicui Chen and Zhe Peng

Finance Research Letters, 2022, vol. 47, issue PB

Abstract: This paper investigates how Bitcoin futures introduction affects Bitcoin's normal and jump volatility over time. Using GARCH-jump models, we find Bitcoin's normal and jump volatility increase in the short run, move in opposing directions in the mid run, and decrease in the long run. Besides, we examine whether futures trading activity, proxied by unexpected trading volume and open interest, is associated with Bitcoin volatility. We document that Bitcoin's normal and jump volatility covary positively with unexpected trading volume in the short and mid run. Meanwhile, both volatility covary positively (negatively) with unexpected open interest in the short (mid) run.

Keywords: Bitcoin; Bitcoin futures; Futures trading activity; Jump risk; GARCH-jump models (search for similar items in EconPapers)
JEL-codes: C13 C22 C32 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 (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000903

DOI: 10.1016/j.frl.2022.102777

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