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Arbitrage opportunities in no-arbitrage portfolios: The case of Bitcoin and Treasury Bills

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  • Wong, Wing-Keung

Abstract

Employing both mean-variance portfolio optimization and stochastic dominance analysis, we examine whether including Bitcoin and a 3-month US Treasury-Bill could generate arbitrage opportunities and lead to a better investment choice. The results show, independent of whether short sales are allowed, that: (1) investors are generally indifferent to portfolios with Bitcoin and without Bitcoin; (2) investors prefer to invest in portfolios with Treasury-Bill than portfolios without Treasury Bill to gain higher expected utility but not a higher expected wealth; and (3) portfolios with both Bitcoin and a Treasury-Bill dominate the ones without Bitcoin and Treasury-Bill, at the first, second and third order. Asubperiod analysis confirms the above results, indicating that investors can earn abnormal returns when both Bitcoin and Treasury-Bills are included in the portfolio. Through robustness checks using varying portfolio sizes and excluding outliers, we confirm the consistency and reliability of our findings. Our findings can be used by investors in their investment processes, and reveal the arbitrary opportunities when Bitcoin and a 3-month US Treasury-Bill is included in the investment.

Suggested Citation

  • Wong, Wing-Keung, 2025. "Arbitrage opportunities in no-arbitrage portfolios: The case of Bitcoin and Treasury Bills," MPRA Paper 130021, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:130021
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    JEL classification:

    • G0 - Financial Economics - - General

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