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The role of bitcoin in well diversified portfolios: A comparative global study

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  • Kajtazi, Anton
  • Moro, Andrea

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.

Suggested Citation

  • Kajtazi, Anton & Moro, Andrea, 2019. "The role of bitcoin in well diversified portfolios: A comparative global study," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 143-157.
    • Handle: RePEc:eee:finana:v:61:y:2019:i:c:p:143-157
    DOI: 10.1016/j.irfa.2018.10.003
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    More about this item

    Keywords

    Bitcoin; Cryptocurrencies; Portfolio diversification; Portfolio strategies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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