BitMEX Bitcoin Derivatives: Price Discovery, Informational Efficiency and Hedging Effectiveness

Journal of Futures Markets, 40(1):23-43, 2020

35 Pages Posted: 9 Apr 2019 Last revised: 8 Dec 2019

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School

Jaehyuk Choi

Peking University - HSBC School of Business

Heungju Park

Sungkyunkwan University - SKK Business School

Sungbin Sohn

Peking University - HSBC Business School

Date Written: March 15, 2019

Abstract

BitMEX is the largest unregulated bitcoin derivatives exchange, listing contracts suitable for leverage trading and hedging. Using minute-by-minute data, we examine its price discovery and hedging effectiveness. We find that BitMEX derivatives lead prices on major bitcoin spot exchanges. Bid-ask spreads, inter-exchange spreads and relative trading volumes are important determinants of price discovery. Further analysis shows that BitMEX derivatives have positive net spillover effects, are informationally more efficient than bitcoin spot prices, and serve as effective hedges against spot price volatility. Our evidence suggests that regulators prioritise investigation of the legitimacy of BitMEX and its contracts.

Keywords: bitcoin, BitMEX, market efficiency, price discovery, spillover

JEL Classification: G14

Suggested Citation

Alexander, Carol and Choi, Jaehyuk and Park, Heungju and Sohn, Sungbin, BitMEX Bitcoin Derivatives: Price Discovery, Informational Efficiency and Hedging Effectiveness (March 15, 2019). Journal of Futures Markets, 40(1):23-43, 2020. Available at SSRN: https://ssrn.com/abstract=3353583 or http://dx.doi.org/10.2139/ssrn.3353583

Carol Alexander

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.carolalexander.org

Jaehyuk Choi

Peking University - HSBC School of Business ( email )

University Town
Shenzhen, Guangdong 518055
China

HOME PAGE: http://www.jaehyukchoi.net/phbs_en

Heungju Park

Sungkyunkwan University - SKK Business School ( email )

Seoul
Korea, Republic of (South Korea)

Sungbin Sohn (Contact Author)

Peking University - HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China
+86-755-26035324 (Phone)
+86-755-26035344 (Fax)

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