Diversification, Integration and Cryptocurrency Market

38 Pages Posted: 29 May 2018

See all articles by Sofia Anyfantaki

Sofia Anyfantaki

Bank of Greece

Nikolas Topaloglou

Athens University of Economics and Business

Date Written: March 29, 2018

Abstract

We investigate the degree to which cryptocurrencies provide diversification benefits to an investor. We use a stochastic spanning methodology to construct optimal portfolios with and without cryptocurrencies, evaluating their comparative performance both inand out-of-sample. Empirical analysis seems to indicate that the expanded investment universe with cryptocurrencies dominates the traditional one with stocks, bonds and cash, yielding potential diversification benefits and providing better investment opportunities for some risk averse investors. We further explain our results by documenting that cryptocurrency markets are segmented from the equity and bond markets.

Keywords: Cryptocurrencies, Portfolio choice, Second order stochastic dominance, Stochastic spanning, Diversification, Market integration, Market segmentation

JEL Classification: C12, C14, D81, G11

Suggested Citation

Anyfantaki, Sofia and Topaloglou, Nikolas, Diversification, Integration and Cryptocurrency Market (March 29, 2018). Available at SSRN: https://ssrn.com/abstract=3186474

Sofia Anyfantaki

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Nikolas Topaloglou (Contact Author)

Athens University of Economics and Business ( email )

76, Patision street
Athens, GR10434
Greece

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