Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets

Seungho Lee; Lorne Switzer; Nabil El Meslmani

doi:10.1016/j.ribaf.2020.101200

Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets

Seungho Lee, Lorne Switzer^* (Corresponding Author), Nabil El Meslmani

^*Corresponding author for this work

Accountancy & Finance, Finance

Research output: Contribution to journal › Article › peer-review

20 Citations (Scopus)

7 Downloads (Pure)

Abstract

This study examines the pricing efficiency for the leading cryptocurrency, Bitcoin using spot prices and all CBOE and CME futures contracts traded from January 2018 to March 2019. We find that the futures basis provide some predictive power for future changes in the spot price and in the risk premium. However, the basis of Bitcoin is a biased predictor of the future spot price changes. Cointegration tests also demonstrate that futures prices are biased predictors of spot prices. Deviations from no-arbitrage between spot and futures markets are persistent and widen significantly with Bitcoin thefts (hacks, frauds) as well as alternative cryptocurrency issuances.

Original language	English
Article number	101200
Journal	Research in International Business and Finance
Volume	53
Early online date	20 Feb 2020
DOIs	https://doi.org/10.1016/j.ribaf.2020.101200
Publication status	Published - Oct 2020
Event	International Conference on Digital, Innovation, Entrepreneurship & Financing - UPV, Campus de Vera, Valencia, Spain Duration: 2 Dec 2019 → 3 Dec 2019 https://dif2019.sciencesconf.org/

Bibliographical note

CRediT authorship contribution statement
Seungho Lee: Data curation, Investigation, Formal analysis, Writing - original draft. Nabil El Meslmani: Conceptualization, Methodology, Validation, Writing - review & editing. Lorne N. Switzer: Conceptualization, Methodology, Formal analysis, Writing - original draft, Writing - review & editing, Supervision, Project administration.

Keywords

Bitcoin
cryptocurrency
speculation
efficient markets
futures arbitrage
PRICES
INEFFICIENCY
BEHAVIOR
PREMIUMS
STOCK INDEX FUTURES
HEDGING EFFECTIVENESS
DISCOVERY
COINTEGRATION
VOLATILITY

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Cite this

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title = "Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets",

abstract = "This study examines the pricing efficiency for the leading cryptocurrency, Bitcoin using spot prices and all CBOE and CME futures contracts traded from January 2018 to March 2019. We find that the futures basis provide some predictive power for future changes in the spot price and in the risk premium. However, the basis of Bitcoin is a biased predictor of the future spot price changes. Cointegration tests also demonstrate that futures prices are biased predictors of spot prices. Deviations from no-arbitrage between spot and futures markets are persistent and widen significantly with Bitcoin thefts (hacks, frauds) as well as alternative cryptocurrency issuances.",

keywords = "Bitcoin, cryptocurrency, speculation, efficient markets, futures arbitrage, PRICES, INEFFICIENCY, BEHAVIOR, PREMIUMS, STOCK INDEX FUTURES, HEDGING EFFECTIVENESS, DISCOVERY, COINTEGRATION, VOLATILITY",

author = "Seungho Lee and Lorne Switzer and {El Meslmani}, Nabil",

note = "CRediT authorship contribution statement Seungho Lee: Data curation, Investigation, Formal analysis, Writing - original draft. Nabil El Meslmani: Conceptualization, Methodology, Validation, Writing - review & editing. Lorne N. Switzer: Conceptualization, Methodology, Formal analysis, Writing - original draft, Writing - review & editing, Supervision, Project administration.; International Conference on Digital, Innovation, Entrepreneurship & Financing, DIF2019 ; Conference date: 02-12-2019 Through 03-12-2019",

year = "2020",

month = oct,

doi = "10.1016/j.ribaf.2020.101200",

language = "English",

volume = "53",

journal = "Research in International Business and Finance",

issn = "0275-5319",

publisher = "Elsevier BV",

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AU - Lee, Seungho

AU - Switzer, Lorne

AU - El Meslmani, Nabil

N1 - CRediT authorship contribution statement Seungho Lee: Data curation, Investigation, Formal analysis, Writing - original draft. Nabil El Meslmani: Conceptualization, Methodology, Validation, Writing - review & editing. Lorne N. Switzer: Conceptualization, Methodology, Formal analysis, Writing - original draft, Writing - review & editing, Supervision, Project administration.

PY - 2020/10

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N2 - This study examines the pricing efficiency for the leading cryptocurrency, Bitcoin using spot prices and all CBOE and CME futures contracts traded from January 2018 to March 2019. We find that the futures basis provide some predictive power for future changes in the spot price and in the risk premium. However, the basis of Bitcoin is a biased predictor of the future spot price changes. Cointegration tests also demonstrate that futures prices are biased predictors of spot prices. Deviations from no-arbitrage between spot and futures markets are persistent and widen significantly with Bitcoin thefts (hacks, frauds) as well as alternative cryptocurrency issuances.

AB - This study examines the pricing efficiency for the leading cryptocurrency, Bitcoin using spot prices and all CBOE and CME futures contracts traded from January 2018 to March 2019. We find that the futures basis provide some predictive power for future changes in the spot price and in the risk premium. However, the basis of Bitcoin is a biased predictor of the future spot price changes. Cointegration tests also demonstrate that futures prices are biased predictors of spot prices. Deviations from no-arbitrage between spot and futures markets are persistent and widen significantly with Bitcoin thefts (hacks, frauds) as well as alternative cryptocurrency issuances.

KW - Bitcoin

KW - cryptocurrency

KW - speculation

KW - efficient markets

KW - futures arbitrage

KW - PRICES

KW - INEFFICIENCY

KW - BEHAVIOR

KW - PREMIUMS

KW - STOCK INDEX FUTURES

KW - HEDGING EFFECTIVENESS

KW - DISCOVERY

KW - COINTEGRATION

KW - VOLATILITY

UR - http://www.scopus.com/inward/record.url?scp=85081223604&partnerID=8YFLogxK

U2 - 10.1016/j.ribaf.2020.101200

DO - 10.1016/j.ribaf.2020.101200

M3 - Article

SN - 0275-5319

VL - 53

JO - Research in International Business and Finance

JF - Research in International Business and Finance

M1 - 101200

T2 - International Conference on Digital, Innovation, Entrepreneurship & Financing

Y2 - 2 December 2019 through 3 December 2019

ER -

Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets

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Seungho Lee

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Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets

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