IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v102y2025ics1062976925000560.html
   My bibliography  Save this article

Hedging uncertainty: Bitcoin's asymmetric diversification benefits in factor-based portfolios

Author

Listed:
  • Marinescu, Ion-Iulian
  • Mirza, Nawazish
  • Horobet, Alexandra
  • Belascu, Lucian

Abstract

This paper examines the benefits of adding Bitcoin in a portfolio framework that also includes the five Fama-French risk factor portfolios in periods of low versus high US economic policy uncertainty (EPU). The empirical investigation utilizes data spanning from 2015 to 2023 and follows a two-step methodological approach. First, the US EPU monthly time series is segmented in sub-periods characterized by high and low EPU, determined using the Bai-Perron structural breaks test. Secondly, we employ the mean-CVaR portfolio optimization approach that seeks to maximize risk-adjusted expected returns on portfolios that are formed with and without Bitcoin. We find that the optimal weight of Bitcoin asset increases and subsequently the risk-adjusted performance of the Bitcoin portfolio improves in periods of high EPU, as opposed to periods of low EPU. Our results are robust to rolling estimation windows, different rebalance frequencies and alternative portfolio construction techniques. This asymmetric impact is critical and should be incorporated in portfolio decisions, as it shows that Bitcoin is most useful as a diversifier in periods where the economic uncertainty is relatively high. The obtained results also reinforce the idea that crypto assets are independent from the existing financial system.

Suggested Citation

  • Marinescu, Ion-Iulian & Mirza, Nawazish & Horobet, Alexandra & Belascu, Lucian, 2025. "Hedging uncertainty: Bitcoin's asymmetric diversification benefits in factor-based portfolios," The Quarterly Review of Economics and Finance, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:quaeco:v:102:y:2025:i:c:s1062976925000560
    DOI: 10.1016/j.qref.2025.102015
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976925000560
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2025.102015?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    crypto investments; economic policy uncertainty; portfolio optimization; risk factor portfolios;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:102:y:2025:i:c:s1062976925000560. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.