Author(s)

Yimiao Chen, Leh-Chyan So^*

Department of Quantitative Finance, National Tsing Hua University, Hsinchu City.

Recently, cryptocurrencies have drawn considerable attention from investors around the world. Such digital assets have also raised numerous hot issues in academic fields. Among them, Bitcoin is the most well-known and most notorious. After it was created in 2009, Bitcoin kept rising in price and reached its peak in late 2017. After that, it plunged dramatically. Coincidentally, Bitcoin futures also launched in December 2017. We are curious about the role Bitcoin futures play in the Bitcoin market. In this study, we investigate the relationship between Bitcoin and Bitcoin futures. First, we compare the optimal hedge ratios using three different hedge strategies, the na?ve hedge, the ordinary least squares (OLS) method, and dynamic hedging with the bivariate BEKK-GJR-GARCH model. Dynamic hedging is the most effective of the three methods; the level of risk reduction is around 59%. Then we test whether the volatility of Bitcoin would be significantly different before and after Bitcoin futures (BTC) launched. Our results support the hypothesis.

Hedging, Hedge Ratios, Bitcoin, Bitcoin Futures, GARCH Model

Chen, Y. and So, L. (2020) New Insights from the Bitcoin Futures Market. Modern Economy, 11, 1463-1475. doi: 10.4236/me.2020.118104.