IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v69y2023i11p6752-6776.html
   My bibliography  Save this article

The Impact of Derivatives on Spot Markets: Evidence from the Introduction of Bitcoin Futures Contracts

Author

Listed:
  • Patrick Augustin

    (McGill University, Montreal, Quebec H3A 0G4, Canada; Canadian Derivatives Institute, Montréal, Quebec H3T 2A7, Canada)

  • Alexey Rubtsov

    (Global Risk Institute, Toronto, Ontario M5J 2H7, Canada; Toronto Metropolitan University, Toronto, Ontario M5B 0C3, Canada)

  • Donghwa Shin

    (University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

Abstract

Cryptocurrencies provide a unique opportunity to identify how derivatives impact spot markets. They are fully fungible and trade across multiple spot exchanges at different prices, and futures contracts were selectively introduced on Bitcoin (BTC) exchange rates against the U.S. dollar (USD) in December 2017. Following the futures introduction, we find a significantly greater increase in cross-exchange price synchronicity for BTC–USD relative to other exchange rate pairs as demonstrated by an increase in price correlations and a reduction in arbitrage opportunities and volatility. We also find support for an increase in price efficiency, market quality, and liquidity. The evidence suggests that futures contracts allowed investors to circumvent arbitrage frictions associated with short-sale constraints, arbitrage risk associated with block confirmation time, and market segmentation. Overall, our analysis supports the view that the introduction of BTC–USD futures was beneficial to the Bitcoin spot market by making the underlying prices more informative.

Suggested Citation

  • Patrick Augustin & Alexey Rubtsov & Donghwa Shin, 2023. "The Impact of Derivatives on Spot Markets: Evidence from the Introduction of Bitcoin Futures Contracts," Management Science, INFORMS, vol. 69(11), pages 6752-6776, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6752-6776
    DOI: 10.1287/mnsc.2023.4900
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2023.4900
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2023.4900?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    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:inm:ormnsc:v:69:y:2023:i:11:p:6752-6776. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.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.