The Role of Bitcoin in Well Diversified Portfolios: A Comparative Global Study

62 Pages Posted: 30 Oct 2018

See all articles by Anton Kajtazi

Anton Kajtazi

Cranfield University - School of Management

Andrea Moro

Cranfield University - School of Management

Date Written: October 5, 2018

Abstract

This research explores the effects of adding bitcoin to an optimal portfolio (naïve, long-only, semi-constrained with and without bitcoin shorting) by relying on the 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 is due more to the increase in returns than in the reduction of volatility. In addition, the improvement is linked to bitcoin’s performance in 2013. We conclude that bitcoin may have a role in portfolio diversification even though our analysis confirms bitcoin speculative characteristics.

Keywords: Bitcoin, Cryptocurrencies, Portfolio Diversification, Portfolio Strategies

JEL Classification: G11

Suggested Citation

Kajtazi, Anton and Moro, Andrea, The Role of Bitcoin in Well Diversified Portfolios: A Comparative Global Study (October 5, 2018). Available at SSRN: https://ssrn.com/abstract=3261266 or http://dx.doi.org/10.2139/ssrn.3261266

Anton Kajtazi

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

Andrea Moro (Contact Author)

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

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