Futures-Trading Activity and Jump Risk : Evidence From the Bitcoin Market

This paper examines the effects of futures trading on the jump risk in the Bitcoin market. We use a nonparametric method to detect Lévy-type jumps in Bitcoin prices and obtain jump risk measures (jump intensity and jump size) of big and small jumps by using 5-minute high-frequency data, and document that Bitcoin prices include both big and small jumps, and the jump risk is time-varying. We then investigate the changes of these jump risk measures before and after the introduction of the Bitcoin futures, and find that the jump size of big and small jumps decreases after the introduction, while the big jump intensity increases, however the effects are significant only in the short run. Further, we examine whether greater futures-trading activity (trading volume and open interest) is associated with greater Bitcoin jump risk and document that: on the one hand, there exists bidirectional causality between unexpected trading volume and jump intensity and size of Bitcoin, and the impulse response function analysis show that the shocks have temporary increasing effects, and the speculative activity in the futures market will increase the jump risk. On the other hand, unexpected open interest Granger causes jump risk but the inverse is not true