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The influence of Bitcoin on portfolio diversification and design

Akhtaruzzaman, Md orcid logoORCID: 0000-0001-7795-1451, Sensoy, Ahmet orcid logoORCID: 0000-0001-7967-5171 and Corbet, Shaen orcid logoORCID: 0000-0001-7430-7417 (2019) The influence of Bitcoin on portfolio diversification and design. Finance Research Letters, 29 . ISSN 1544-6123

We employ a VARMA DCC-GARCH model to search for portfolio diversification with Bitcoin in global industry portfolios and bond index. We find lower dynamic conditional correlations between Bitcoin and industry portfolios & bond index, allowing an investment in Bitcoin to hedge the risk against industry portfolios and bonds. The most effective hedge in a Bitcoin/industry (bond) portfolio is to short Utilities sector. Results are robust to the use of US industry portfolios and a cryptocurrency index instead of global industry portfolios and Bitcoin, respectively. Our results can help investors make informed decisions with regard to risk management and portfolio analysis.
Item Type:Article (Published)
Additional Information:Atricle Number: 101344
Uncontrolled Keywords:Bitcoin; DCC; Optimal Portfolio; Hedge Ratio; Diversification
Subjects:Business > Finance
DCU Faculties and Centres:DCU Faculties and Schools > DCU Business School
Official URL:http://dx.doi.org/10.1016/j.frl.2019.101344
Copyright Information:© 2019 Elsevier. CC BY-NC-ND
ID Code:25056
Deposited On:01 Oct 2020 11:51 by Thomas Murtagh . Last Modified 28 Oct 2021 03:30

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