Price Discovery, High-Frequency Trading and Jumps in Bitcoin Markets

27 Pages Posted: 13 May 2019 Last revised: 12 Oct 2020

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School; Peking University HSBC Business School

Daniel F. Heck

University of Sussex Business School

Date Written: May 5, 2019

Abstract

A later version of this paper has been published in the Journal of Financial Stability (Volume 50, October 2020, Article Number 100776).

When trading volumes are high, bitcoin futures on the Chicago Mercantile Exchange (CME) and -- until recently -- the Chicago Board Options Exchange (CBOE) lead high-frequency bitcoin price formation. During periods of low trading volumes, the futures become decoupled from prices on centralised bitcoin spot exchanges. However, the trading volume on CME futures has been trending upwards and their price discovery role is now highly significant. Basis risk increases following jumps in either spot or futures prices but these are rapidly arbitraged away by high-frequency institutional traders in the futures.

Keywords: Bitcoin Reference Rate (BRR); Coinbase; Kraken; BitStamp; Gemini

JEL Classification: C22, C5, E42, F31, G1, G2

Suggested Citation

Alexander, Carol and Heck, Daniel, Price Discovery, High-Frequency Trading and Jumps in Bitcoin Markets (May 5, 2019). Available at SSRN: https://ssrn.com/abstract=3383147 or http://dx.doi.org/10.2139/ssrn.3383147

Carol Alexander (Contact Author)

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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

Peking University HSBC Business School ( email )

Daniel Heck

University of Sussex Business School ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

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