Bitcoin price volatility transmission between spot and futures markets

In this paper, the volatility transmission between the two bitcoin markets, namely, the spot and futures markets is examined. We use the daily series over a sampling period spanning from December 2017 to September 2022. We focus on several events that have spread severe risk throughout cryptomarkets, such as the COVID-19 pandemic of 2020, the governmental announcements and environmental concerns of 2021, and the cryptowinter cases of 2022. We calculate the symmetric and asymmetric volatility impulse responses (VIRFs) using a VEC-BEKK-MGARCH model and the Hafner and Herwartz (2006) framework. The results of the VIRF analysis demonstrate the existence of asymmetric responses between the two markets, with the shock of the COVID-19 pandemic exerting a greater impact on the variance of the futures market than on that of the spot market. Additionally, we employ the connectedness approach of Diebold and Yilmaz (2012, 2014) as modified by Gabauer (2020) and apply a DCC-GARCH model to examine the volatility spillovers across the two markets. Our results suggest that the bitcoin spot market is the dominant transmitter of volatility shocks to the futures market.