Arbitrage Opportunities and Feedback Trading in Regulated Bitcoin Futures Market : An Intraday Analysis

The study investigates the impact of arbitrage opportunities on feedback trading using intraday 5-minute Bitcoin futures and spot prices. The study uses quantile regressions to capture different market conditions and the conditional distribution of returns and finds episodic cases of positive and negative feedback trading. The resulting evidence reveals that the intensity and type of feedback trading are significantly related to the market conditions and the degree of arbitrage opportunities. Channel “breakouts” analysis indicates that the bear and normal market conditions are dominated by positive feedback trading. When the basis declines by varying magnitudes across quantiles, positive feedback trading shifts to negative feedback trading. The findings suggest widening basis intensifies negative feedback trading during bull market conditions. However, when the basis decreases by varying scales across upper quantiles, negative feedback trading switches to positive feedback trading. By observing the trading signals, investors can adjust their portfolio positions accordingly to maximize returns and minimize risk