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2019•SSRN Electronic JournalOpen access

The Information Content of the Speculative and Hedging Activities in the CME Bitcoin Futures Market

Shimeng Shi

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Abstract

We study the information content of the speculative and hedging activities in the CME Bitcoin futures market. We calculate a hedging-speculation demand ratio (HSD) and find that it significantly predicts spot volatility, volume, and futures volatility. The more relatively important the hedging (speculative) demand, the higher (lower) spot volatility and trading volume as well as futures volatility. These findings suggest that the impact of futures trading activities depends on who trades futures. More hedging (speculative) activities destabilise (stabilise) both cash and futures markets.

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What this paper is about

We study the information content of the speculative and hedging activities in the CME Bitcoin futures market. We calculate a hedging-speculation demand ratio (HSD) and find that it significantly predicts spot volatility, volume, and futures volatility. The more relatively important the hedging (speculative) demand, the higher (lower) spot volatility and trading volume as well as futures volatility. These findings suggest that the impact of futures trading activities depends on who trades futures. More hedging (speculative) activities destabilise (stabilise) both cash and futures markets.

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Available abstract

We study the information content of the speculative and hedging activities in the CME Bitcoin futures market. We calculate a hedging-speculation demand ratio (HSD) and find that it significantly predicts spot volatility, volume, and futures volatility. The more relatively important the hedging (speculative) demand, the higher (lower) spot volatility and trading volume as well as futures volatility. These findings suggest that the impact of futures trading activities depends on who trades futures. More hedging (speculative) activities destabilise (stabilise) both cash and futures markets.

Key concepts: Futures contract, Speculation, Volatility (finance), Futures market, Financial economics, Economics, Cash, Spot market

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