The Risk and Return Relation in Bitcoin Spot and Futures Intraday Returns

Abstract

Since The Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) presented Bitcoin future contracts in December 2017. This study examines the risk and return relationship between Bitcoin spot and futures intraday returns. We have five-minute intraday data for the Bitcoin spot market and futures markets. This data is obtained from Bloomberg between December 10, 2017, at 17:15, and April 6, 2018, at 00:00. The Augmented Dicky Fuller (ADF) test and the GARCH in Mean (GARCH-M) Model through variance of risk and variance of volatility are used to examine this relationship. According to empirical findings, several selected models in various combinations revealed a positive relationship between risk and return for both the spot market and the futures market for Bitcoin. Volatilities and previous returns both suggested a positive, significant effect on current stocks. Based on historical Spot prices and Future prices of Bitcoin, our results indicate that the GARCH in mean (GARCH-M) model is highly helpful to explain the risk and return link in Bitcoin spot and futures intraday returns.