Futures-Trading Activity and Jump Risk: Evidence From the Bitcoin Market

46 Pages Posted: 22 Jan 2021 Last revised: 12 Oct 2021

See all articles by Chuanhai Zhang

Chuanhai Zhang

Zhongnan University of Economics and Law - School of Finance

Huan Ma

School of Finance

Xiaosai Liao

Southwestern University of Finance and Economics (SWUFE) - Institute of Chinese Financial Studies (ICFS)

Date Written: November 12, 2020

Abstract

This paper examines the effects of futures trading on jump risk in the Bitcoin market. Based on 5-minute high-frequency data, we use a nonparametric method to detect Lévy-type jumps in Bitcoin prices and document that there are both big and small jumps, and the intensity and size of jump are time-varying. We then investigate the changes of these jump risk measures after the Bitcoin futures introduction and find that the jump size of big and small jumps decreases while the big jump intensity increases. Furthermore, we examine whether greater futures-trading activity, proxied by trading volume and open interest, is associated with greater spot market jump risk. It is found that there exists a bidirectional causality between unexpected futures-trading volume and spot market jump risk. Unexpected open interest Granger causes jump risk, but the reverse is not true.

Keywords: Bitcoin futures; Lévy jumps; Granger causality; high-frequency data; Fintech

JEL Classification: G14, C12, C14, C32

Suggested Citation

Zhang, Chuanhai and Ma, Huan and Liao, Xiaosai, Futures-Trading Activity and Jump Risk: Evidence From the Bitcoin Market (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729476 or http://dx.doi.org/10.2139/ssrn.3729476

Chuanhai Zhang (Contact Author)

Zhongnan University of Economics and Law - School of Finance ( email )

WenQuan Building, 182# Nanhu Avenue
East Lake High-tech Development Zone
Wuhan, Hubei 430073
China

Huan Ma

School of Finance ( email )

WenQuan Building, 182# Nanhu Avenue
East Lake High-tech Development Zone
Wuhan
China

Xiaosai Liao

Southwestern University of Finance and Economics (SWUFE) - Institute of Chinese Financial Studies (ICFS) ( email )

Chengdu
China

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