Examining Bitcoin Price Volatility Transmission between Spot and Futures Markets

This paper examines volatility transmission between the spot and futures bitcoin markets. We use daily series over a sampling period that spans from December 2017 to September 2022. We examine several events that spread severe risk in cryptomarkets, such as the COVID-19 pandemic in 2020, governmental announcements and environmental concerns in 2021, and crypto-winter cases in 2022. We calculate symmetric and asymmetric VIRFs using a VEC-BEKK-GARCH model and the Hafner and Herwartz (2006) framework. Our results from the VIRF analysis demonstrate the existence of asymmetric responses between the two markets, with the shock during the COVID-19 pandemic having a greater impact on the variance of the futures market. Additionally, we employ the connectedness approach of Diebold and Yilmaz (2012, 2014) to examine the volatility spillovers across the two markets. Our results suggest that the bitcoin spot market is the dominant transmitter of volatility shocks to the futures market