Bitcoin futures risk premia

Abstract

Abstract This paper presents an empirical analysis of bitcoin futures risk premia. Based on the relevant theories and empirical findings of commodity futures risk premia, we study a battery of predictors, including position‐based measures, market microstructure factors, and macroeconomic variables. We find that trading activity and extreme sentiment of speculators and retailers present significant predicting power on the subsequent bitcoin futures price changes over different time horizons. We also find evidence that the lower transaction cost, the higher bitcoin futures risk premiums. Regarding macroeconomic variables, financial conditions index, TED spread, US M2 money stock, and funding cost of financial institutions could predict bitcoin futures returns. The return impact of net position changes of hedgers is likely to be affected by extremes in macroeconomic variables. Speculators behave like negative feedback traders, while retailers are positive feedback traders. This detailed analysis of the risk premia of this emerging derivatives market provides critical implications.