Portfolio Management with Cryptocurrencies: The Role of Estimation Risk

Economics Letters, Forthcoming

12 Pages Posted: 9 Dec 2018 Last revised: 23 Jan 2019

See all articles by Emmanouil Platanakis

Emmanouil Platanakis

University of Bath - School of Management

Andrew Urquhart

ICMA Centre, Henley Business School

Date Written: January 21, 2019

Abstract

This paper contributes to the literature on cryptocurrencies, portfolio management and estimation risk by comparing the performance of naïve diversification, Markowitz diversification and the advanced Black-Litterman model with VBCs that controls for estimation errors in a portfolio of cryptocurrencies. We show that the advanced Black-Litterman model with VBCs yields superior out-of-sample risk-adjusted returns as well as lower risks. Our results are robust to the inclusion of transaction costs and short-selling, indicating that sophisticated portfolio techniques that control for estimation errors are preferred when managing cryptocurrency portfolios.

Keywords: Cryptocurrencies, Estimation Errors, Portfolio Optimization

JEL Classification: G1; G2; G11

Suggested Citation

Platanakis, Emmanouil and Urquhart, Andrew, Portfolio Management with Cryptocurrencies: The Role of Estimation Risk (January 21, 2019). Economics Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3287176 or http://dx.doi.org/10.2139/ssrn.3287176

Emmanouil Platanakis (Contact Author)

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Andrew Urquhart

ICMA Centre, Henley Business School ( email )

University of Reading
Whiteknights
Reading, Berkshire RG6 6BA
United Kingdom

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