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Portfolio management with cryptocurrencies: The role of estimation risk

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  • Platanakis, Emmanouil
  • Urquhart, Andrew

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.

Suggested Citation

  • Platanakis, Emmanouil & Urquhart, Andrew, 2019. "Portfolio management with cryptocurrencies: The role of estimation risk," Economics Letters, Elsevier, vol. 177(C), pages 76-80.
    • Handle: RePEc:eee:ecolet:v:177:y:2019:i:c:p:76-80
    DOI: 10.1016/j.econlet.2019.01.019
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    References listed on IDEAS

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    More about this item

    Keywords

    Cryptocurrencies; Estimation errors; Portfolio optimization;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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