Fractional cointegration in bitcoin spot and futures markets

Abstract

Abstract This paper adopts the fractional cointegrated vector autoregressive (FCVAR) model to examine high‐frequency price discovery of bitcoin spot and futures prices from December 18, 2017 to July 31, 2020. We find that bitcoin spot and futures prices exhibit long memory properties and they are fractionally cointegrated. The result shows that the bitcoin futures market dominates the price discovery process. Interestingly, during the Covid‐19 pandemic, the bitcoin price discovery leadership has switched to the spot market. Moreover, we find that the bitcoin futures market follows a long‐run contango. The nonfractional CVAR model overestimates the price discovery of the futures market.