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Optimal vs naïve diversification in cryptocurrencies


  • Platanakis, Emmanouil
  • Sutcliffe, Charles
  • Urquhart, Andrew


This paper contributes to the literature on cryptocurrencies by examining the performance of naïve (1/N) and optimal (Markowitz) diversification in a portfolio of four popular cryptocurrencies. We employ weekly data with weekly rebalancing and show there is very little to select between naïve diversification and optimal diversification. Our results hold for different levels of risk-aversion and an alternative estimation window.

Suggested Citation

  • Platanakis, Emmanouil & Sutcliffe, Charles & Urquhart, Andrew, 2018. "Optimal vs naïve diversification in cryptocurrencies," Economics Letters, Elsevier, vol. 171(C), pages 93-96.
  • Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:93-96
    DOI: 10.1016/j.econlet.2018.07.020

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    References listed on IDEAS

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    2. Urquhart, Andrew, 2016. "The inefficiency of Bitcoin," Economics Letters, Elsevier, vol. 148(C), pages 80-82.
    3. Victor DeMiguel & Lorenzo Garlappi & Raman Uppal, 2009. "Optimal Versus Naive Diversification: How Inefficient is the 1-N Portfolio Strategy?," Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 1915-1953, May.
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    8. Fabian Ackermann & Walt Pohl & Karl Schmedders, 2012. "Optimal and Naive Diversification in Currency Markets," Swiss Finance Institute Research Paper Series 12-36, Swiss Finance Institute.
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    10. Kan, Raymond & Zhou, Guofu, 2007. "Optimal Portfolio Choice with Parameter Uncertainty," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(03), pages 621-656, September.
    11. Nadarajah, Saralees & Chu, Jeffrey, 2017. "On the inefficiency of Bitcoin," Economics Letters, Elsevier, vol. 150(C), pages 6-9.
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    15. Bouri, Elie & Molnár, Peter & Azzi, Georges & Roubaud, David & Hagfors, Lars Ivar, 2017. "On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier?," Finance Research Letters, Elsevier, vol. 20(C), pages 192-198.
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    18. Platanakis, Emmanouil & Sakkas, Athanasios & Sutcliffe, Charles, 2019. "Harmful diversification: Evidence from alternative investments," The British Accounting Review, Elsevier, vol. 51(1), pages 1-23.
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    1. repec:eee:finana:v:63:y:2019:i:c:p:49-57 is not listed on IDEAS
    2. repec:eee:finana:v:62:y:2019:i:c:p:182-199 is not listed on IDEAS
    3. repec:eee:ecolet:v:177:y:2019:i:c:p:76-80 is not listed on IDEAS
    4. Elie Bouri & Konstantinos Gkillas & Rangan Gupta, 2019. "Trade Uncertainties and the Hedging Abilities of Bitcoin," Working Papers 201948, University of Pretoria, Department of Economics.


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