Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin

Journal of Asset Management, 16, 6, 365-373, doi:10.1057/jam.2015.5

17 Pages Posted: 14 Sep 2013 Last revised: 23 May 2017

See all articles by Marie Briere

Marie Briere

Amundi Asset Management; Paris Dauphine University; Université Libre de Bruxelles

Kim Oosterlinck

Université Libre de Bruxelles - SBS-EM, CEB

Ariane Szafarz

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi

Date Written: 2015

Abstract

Bitcoin is a major virtual currency. Using weekly data over the 2010-2013 period, we analyze a Bitcoin investment from the standpoint of a U.S. investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, Bitcoin investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior which may not last in the medium or long run.

Keywords: Bitcoin, risk, return, diversification, virtual currency

JEL Classification: G11, G15, O16, F39, G01, E44

Suggested Citation

Briere, Marie and Oosterlinck, Kim and Szafarz, Ariane, Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin (2015). Journal of Asset Management, 16, 6, 365-373, doi:10.1057/jam.2015.5 . Available at SSRN: https://ssrn.com/abstract=2324780 or http://dx.doi.org/10.2139/ssrn.2324780

Marie Briere

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Paris Dauphine University ( email )

Université Libre de Bruxelles ( email )

Brussels
Belgium

Kim Oosterlinck (Contact Author)

Université Libre de Bruxelles - SBS-EM, CEB ( email )

50 Avenue Roosevelt, CP114/03
Brussels 1050
Belgium

Ariane Szafarz

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

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