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Exploring portfolio diversification with alternative investments: An international TVP-VAR approach

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  • Tsioutsios, Alexandros
  • Yarovaya, Larisa
  • Dimitriou, Dimitrios

Abstract

This study examines the potential for portfolio diversification across a wide range of international assets, including equities, bonds, commodities, and alternatives like gold, Bitcoin, and real estate. Using 13 years of daily returns data from over 30 countries (MSCI indices) and employing time-varying parameter vector autoregressive (TVP-VAR) approach, we provide insights into the behavior of connectedness of these assets. The results indicate that the MSCI equity indices (i.e., MSCIWO, MSCNA, MSCIEU, MSCIPC) show strong interconnectedness and global influence, while bonds exhibit bidirectional volatility with equities. Brent and BCOM drive significant spillovers, especially to NG, while BDI remains isolated. Gold acts as a hedge, linking to commodities and bonds, whereas Bitcoin remains largely disconnected from traditional markets. These findings offer practical implications for investors, funds, banks, and policymakers seeking to optimize portfolio diversification.

Suggested Citation

  • Tsioutsios, Alexandros & Yarovaya, Larisa & Dimitriou, Dimitrios, 2025. "Exploring portfolio diversification with alternative investments: An international TVP-VAR approach," Research in International Business and Finance, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:riibaf:v:80:y:2025:i:c:s027553192500399x
    DOI: 10.1016/j.ribaf.2025.103143
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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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