Bitcoin and Portfolio Diversification: Evidence from Portfolios of U.S., European and Chinese Assets
44 Pages Posted: 5 Jan 2018
Date Written: January 1, 2018
This research explores the effects of adding bitcoin to an optimal portfolio (naïve, long-only, unconstrained and semi-constrained) by relying on a mean-CVaR approach. We explore bitcoin’s role in portfolios of U.S., European and Chinese assets. We back-test to compare the performance of portfolios with and without bitcoin for each scenario. The results show that by adding bitcoin, the portfolio performance improves; but this depends more on the increase in returns than in the reduction of volatility. In addition, the overall benefit is mainly the result of the high returns obtained in 2013 with marginal advantage thereafter. We conclude that bitcoin may have a role in portfolio diversification even if our analysis confirms its speculative characteristics.
Keywords: Bitcoin, Cryptocurrencies, Portfolio Diversification, Portfolio Strategies
JEL Classification: G11
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