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Cryptocurrency-portfolios in a mean-variance framework

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  • Brauneis, Alexander
  • Mestel, Roland

Abstract

We apply the Markowitz mean-variance framework in order to assess risk-return benefits of cryptocurrency-portfolios. Using daily data of the 500 most capitalized cryptocurrencies for the time span 1/1/2015 to 12/31/2017, we relate risk and return of different mean-variance portfolio strategies to single cryptocurrency investments and two benchmarks, the naively diversified portfolio and the CRIX. In an out-of-sample analysis accounting for transaction cost we find that combining cryptocurrencies enriches the set of ‘low’-risk cryptocurrency investment opportunities. In terms of the Sharpe ratio and certainty equivalent returns, the 1/N-portfolio outperforms single cryptocurrencies and more than 75% of mean-variance optimal portfolios.

Suggested Citation

  • Brauneis, Alexander & Mestel, Roland, 2019. "Cryptocurrency-portfolios in a mean-variance framework," Finance Research Letters, Elsevier, vol. 28(C), pages 259-264.
    • Handle: RePEc:eee:finlet:v:28:y:2019:i:c:p:259-264
    DOI: 10.1016/j.frl.2018.05.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Cryptocurrencies; Portfolio optimization; Markowitz; Naive diversification;
    All these keywords.

    JEL classification:

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

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