IDEAS home Printed from https://ideas.repec.org/a/spd/journl/v69y2019i3p55-74.html
   My bibliography  Save this article

“Chicago Mercantile Exchange Bitcoin Futures: Volatility, Liquidity and Margin”

Author

Listed:
  • Carl Luft

    (c Department of Economics, DePaul University, Chicago, Illinois, U.S.A)

  • Jin Man Lee

    (c Department of Economics, DePaul University, Chicago, Illinois, U.S.A)

  • Jin W. Choi

    (c Department of Economics, DePaul University, Chicago, Illinois, U.S.A)

Abstract

This paper explores empirically the behavior of the Chicago Mercantile Exchange (CME) bitcoin futures contract. The analysis focuses on the time period between the launch of the CME bitcoin futures contract on December 18, 2017, and September 17, 2018. The behavior of the bitcoin spot market and CME futures market is compared and analyzed along several dimensions: price, volatility and liquidity. By comparing the Garman-Klass volatilities of bitcoin spot and futures prices with those of different assets, we find that both the bitcoin spot and futures markets exhibit relatively high volatility compared to other assets. When the ratio of trading volume over open interest is used to measure liquidity, the bitcoin futures market shows a mid-level liquidity. We also find while the exchange margin is set to meet the normal price volatility that can cover the daily price movements within one standard deviation, the brokerage margin for bitcoin futures is set at beyond two standard deviations. Some brokerage firms impose non-margin requirements such as high net account balance and open position limits in addition to regular margins. We conclude that the brokerage firms’ relatively high margin and non-margin requirements impede trading activity such as short-sales and thus, liquidity and efficiency in the bitcoin futures market has been slow to develop.

Suggested Citation

  • Carl Luft & Jin Man Lee & Jin W. Choi, 2019. "“Chicago Mercantile Exchange Bitcoin Futures: Volatility, Liquidity and Margin”," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 69(3), pages 55-74, July-Sept.
  • Handle: RePEc:spd:journl:v:69:y:2019:i:3:p:55-74
    as

    Download full text from publisher

    File URL: https://spoudai.unipi.gr/index.php/spoudai/article/download/2741/2687/2741-3524-1-SM
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
    2. Köchling, Gerrit & Müller, Janis & Posch, Peter N., 2019. "Does the introduction of futures improve the efficiency of Bitcoin?," Finance Research Letters, Elsevier, vol. 30(C), pages 367-370.
    3. Kapar, Burcu & Olmo, Jose, 2019. "An analysis of price discovery between Bitcoin futures and spot markets," Economics Letters, Elsevier, vol. 174(C), pages 62-64.
    4. Kumhof, Michael & Noone, Clare, 2018. "Central bank digital currencies - design principles and balance sheet implications," Bank of England working papers 725, Bank of England.
    5. Michael D. Bordo & Andrew T. Levin, 2017. "Central Bank Digital Currency and the Future of Monetary Policy," NBER Working Papers 23711, National Bureau of Economic Research, Inc.
    6. Morten Linnemann Bech & Rodney Garratt, 2017. "Central bank cryptocurrencies," BIS Quarterly Review, Bank for International Settlements, September.
    7. Beckers, Stan, 1983. "Variances of Security Price Returns Based on High, Low, and Closing Prices," The Journal of Business, University of Chicago Press, vol. 56(1), pages 97-112, January.
    8. Carey Caginalp & Gunduz Caginalp, 2018. "Valuation, Liquidity Price, and Stability of Cryptocurrencies," Papers 1802.09959, arXiv.org.
    9. Cheah, Eng-Tuck & Fry, John, 2015. "Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin," Economics Letters, Elsevier, vol. 130(C), pages 32-36.
    10. Aalborg, Halvor Aarhus & Molnár, Peter & de Vries, Jon Erik, 2019. "What can explain the price, volatility and trading volume of Bitcoin?," Finance Research Letters, Elsevier, vol. 29(C), pages 255-265.
    11. C. Baek & M. Elbeck, 2015. "Bitcoins as an investment or speculative vehicle? A first look," Applied Economics Letters, Taylor & Francis Journals, vol. 22(1), pages 30-34, January.
    12. Hardouvelis, Gikas A & Kim, Dongcheol, 1995. "Margin Requirements, Price Fluctuations, and Market Participation in Metal Futures," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 659-671, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Helder Miguel Correia Virtuoso Sebastião & Paulo José Osório Rupino Da Cunha & Pedro Manuel Cortesão Godinho, 2021. "Cryptocurrencies and blockchain. Overview and future perspectives," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 21(3), pages 305-342.
    2. Aurelio F. Bariviera & Ignasi Merediz‐Solà, 2021. "Where Do We Stand In Cryptocurrencies Economic Research? A Survey Based On Hybrid Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(2), pages 377-407, April.
    3. Parthajit Kayal & Purnima Rohilla, 2021. "Bitcoin in the economics and finance literature: a survey," SN Business & Economics, Springer, vol. 1(7), pages 1-21, July.
    4. Flori, Andrea, 2019. "News and subjective beliefs: A Bayesian approach to Bitcoin investments," Research in International Business and Finance, Elsevier, vol. 50(C), pages 336-356.
    5. Stefano Martinazzi & Daniele Regoli & Andrea Flori, 2020. "A Tale of Two Layers: The Mutual Relationship between Bitcoin and Lightning Network," Risks, MDPI, vol. 8(4), pages 1-18, December.
    6. Theodore Pelagidis & Eleftheria Kostika, 2022. "Investigating the role of central banks in the interconnection between financial markets and cryptoassets," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 481-507, September.
    7. Serif Dilek, 2019. "Cryptocurrencies in the Digital Era: The Role of Technological Trust and Its International Effects," Contributions to Economics, in: Umit Hacioglu (ed.), Blockchain Economics and Financial Market Innovation, chapter 0, pages 453-474, Springer.
    8. Andrea Flori, 2019. "Cryptocurrencies In Finance: Review And Applications," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(05), pages 1-22, August.
    9. Gersbach, Hans & Böser, Florian, 2020. "Monetary Policy with a Central Bank Digital Currency: The Short and the Long Term," CEPR Discussion Papers 15322, C.E.P.R. Discussion Papers.
    10. Michael Demmler & Amilcar Orlian Fernández Domínguez, 2021. "Bitcoin and the South Sea Company: A comparative analysis," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 13(1), pages 197-224, March.
    11. Sarah Allen & Srđjan Čapkun & Ittay Eyal & Giulia Fanti & Bryan A. Ford & James Grimmelmann & Ari Juels & Kari Kostiainen & Sarah Meiklejohn & Andrew Miller & Eswar Prasad & Karl Wüst & Fan Zhang, 2020. "Design Choices for Central Bank Digital Currency: Policy and Technical Considerations," NBER Working Papers 27634, National Bureau of Economic Research, Inc.
    12. Paolo Fegatelli, 2019. "Central bank digital currencies: The case of universal central bank reserves," BCL working papers 130, Central Bank of Luxembourg.
    13. Dunbar, Kwamie & Owusu-Amoako, Johnson, 2023. "Predictability of crypto returns: The impact of trading behavior," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    14. Gil-Alana, Luis Alberiko & Abakah, Emmanuel Joel Aikins & Rojo, María Fátima Romero, 2020. "Cryptocurrencies and stock market indices. Are they related?," Research in International Business and Finance, Elsevier, vol. 51(C).
    15. Romain Baeriswyl & Samuel Reynard & Alexandre Swoboda, 2024. "Retail CBDC purposes and risk transfers to the central bank," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 160(1), pages 1-15, December.
    16. Marcelo A. T. Aragão, 2021. "A Few Things You Wanted to Know about the Economics of CBDCs, but were Afraid to Model: a survey of what we can learn from who has done," Working Papers Series 554, Central Bank of Brazil, Research Department.
    17. Alexandra Mitschke, 2021. "Central Bank Digital Currencies and Monetary Policy Effectiveness in the Euro Area," Working Papers Dissertations 74, Paderborn University, Faculty of Business Administration and Economics.
    18. Levulytė, Laura & Šapkauskienė, Alfreda, 2021. "Cryptocurrency in context of fiat money functions," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 44-54.
    19. Haffar, Adlane & Le Fur, Éric, 2022. "Time-varying dependence of Bitcoin," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 211-220.
    20. Bourghelle, David & Jawadi, Fredj & Rozin, Philippe, 2022. "Do collective emotions drive bitcoin volatility? A triple regime-switching vector approach," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 294-306.

    More about this item

    Keywords

    bitcoin; futures; Garman-Klass; volatility; liquidity; margin;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spd:journl:v:69:y:2019:i:3:p:55-74. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SPOUDAI Journal of Economics and Business (email available below). General contact details of provider: https://edirc.repec.org/data/depirgr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.