Evaluation of Multi-Asset Investment Strategies with Digital Assets

32 Pages Posted: 11 Sep 2020

See all articles by Alla Petukhina

Alla Petukhina

Humboldt University of Berlin - Institute for Statistics and Econometrics

Erin Sprünken

Humboldt University of Berlin

Date Written: July 30, 2020

Abstract

The drastic growth of the cryptocurrencies market capitalization boosts investigation of their diversification benefits in portfolio construction. In this paper with a set of classical and modern measurement tools, we assess the out-of-sample performance of eight portfolio allocation strategies relative to the naive 1=N rule applied to traditional and crypto-assets investment universe. Evaluated strategies include a range from classical Markowitz rule to the recently introduced LIBRO approach, Trimborn et al. (2019). Furthermore, we also compare three extensions for strategies with respect to input estimators applied. The results show that in the presence of alternative assets, such as cryptocurrencies, Mean-Variance strategies under-perform the benchmark portfolio. In contrast, CVaR optimization tends to outperform the benchmark as well as geometric optimization. Furthermore, we find evidence that liquidity-bounded strategies tend to perform very well. Thus, our findings underscore the non-normal distribution of returns as well as the necessity to control for liquidity constraints at alternative assets markets.

Keywords: Portfolio Management, Asset Allocation, Investments, Alternative Assets, Bitcoin, Cryptocurrencies, LIBRO

JEL Classification: C01, C58, G11

Suggested Citation

Petukhina, Alla and Sprünken, Erin, Evaluation of Multi-Asset Investment Strategies with Digital Assets (July 30, 2020). Available at SSRN: https://ssrn.com/abstract=3664219 or http://dx.doi.org/10.2139/ssrn.3664219

Alla Petukhina

Humboldt University of Berlin - Institute for Statistics and Econometrics ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Erin Sprünken (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, Berlin 10099
Germany

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