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Bitcoin volatility and the introduction of bitcoin futures: A portfolio construction approach

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  • Bouteska, Ahmed
  • Harasheh, Murad

Abstract

We evaluate the introduction of Bitcoin futures on Bitcoin return and volatility using realized volatility and GARCH model pre-and post-futures. We also assess the portfolio construction implications by building two portfolios containing the top 25 S&P stocks, one without futures and one with. GARCH and realized volatility show mixed results. We provide that futures make Bitcoin riskier and more vulnerable to fluctuations over time. However, Bitcoin futures improve the portfolio's volatility and returns profile. Our findings offer implications regarding portfolio strategies implemented by risk-averse and risk-seeking investors and managers as we show how Bitcoin futures can hedge investments.

Suggested Citation

  • Bouteska, Ahmed & Harasheh, Murad, 2023. "Bitcoin volatility and the introduction of bitcoin futures: A portfolio construction approach," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s154461232300572x
    DOI: 10.1016/j.frl.2023.104200
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    References listed on IDEAS

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    1. Augustin, Patrick & Rubtsov, Alexey & Shin, Donghwa, 2022. "The impact of derivatives on spot markets: Evidence from the introduction of bitcoin futures contracts," LawFin Working Paper Series 41, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
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    8. Corbet, Shaen & Lucey, Brian & Peat, Maurice & Vigne, Samuel, 2018. "Bitcoin Futures—What use are they?," Economics Letters, Elsevier, vol. 172(C), pages 23-27.
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    Cited by:

    1. Brini, Alessio & Lenz, Jimmie, 2024. "Pricing cryptocurrency options with machine learning regression for handling market volatility," Economic Modelling, Elsevier, vol. 136(C).

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