Cryptocurrency Returns before and after the Introduction of Bitcoin Futures


DENİZ P., Stengos T.

JOURNAL OF RISK AND FINANCIAL MANAGEMENT, vol.13, no.6, 2020 (ESCI) identifier

  • Publication Type: Article / Article
  • Volume: 13 Issue: 6
  • Publication Date: 2020
  • Doi Number: 10.3390/jrfm13060116
  • Journal Name: JOURNAL OF RISK AND FINANCIAL MANAGEMENT
  • Journal Indexes: Emerging Sources Citation Index (ESCI)
  • Keywords: bitcoin, cryptocurrencies, PC-LASSO, GARCH, VOLATILITY, UNCERTAINTY, HEDGE, GOLD
  • Marmara University Affiliated: Yes

Abstract

This paper examines the behaviour of Bitcoin returns and those of several other cryptocurrencies in the pre and post period of the introduction of the Bitcoin futures market. We use the principal component-guided sparse regression (PC-LASSO) model to analyze several sample sizes for the pre and post periods. Besides the neighbourhood of the break time, the current period is also investigated as returns start to recover after some time. Search intensity is observed to be the most important variable for Bitcoin for all periods, whereas for the other cryptocurrencies there are other variables that seem more important in the pre period, while search intensity still stands out in the post period. Furthermore, GARCH analyses suggest that search intensity increases the volatility of Bitcoin returns more in the post period than it does in the pre period. Our empirical findings suggest that the top five cryptocurrencies are substitutes before the launch of Bitcoin futures. However, this effect is lost, and moreover, there are spillover effects on altcoins during both the post and the recovery period. We find a spillover effect of the introduction of bitcoin futures on altcoins and this effect seems to persist during the recovery period.