The economic value of Bitcoin: A portfolio analysis of currencies, gold, oil and stocks

Efthymia Symitsi; Konstantinos J. Chalvatzis

doi:10.1016/j.ribaf.2018.12.001

The economic value of Bitcoin: A portfolio analysis of currencies, gold, oil and stocks

Efthymia Symitsi, Konstantinos J. Chalvatzis

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Abstract

We assess the out-of-sample performance of Bitcoin within portfolios of various asset classes and a well-diversified portfolio under four strategies and estimate the economic gains net of transaction costs. We find statistically significant diversification benefits from the inclusion of Bitcoin which are more pronounced for commodities. Most importantly, the decrease in the overall portfolio risk due to the low correlation of Bitcoin with other assets is not offset by its high volatility. However, the inclusion of Bitcoin pays off little if investors accommodate a battery of economic instruments. Considering non-bubble conditions that are not marked by explosive prices in cryptocurrencies, we document substantially diminished benefits.

Original language	English
Pages (from-to)	97-110
Number of pages	14
Journal	Research in International Business and Finance
Volume	48
Early online date	5 Dec 2018
DOIs	https://doi.org/10.1016/j.ribaf.2018.12.001
Publication status	Published - Apr 2019

Keywords

Bitcoin
Portfolio
Economic value
Non-Bubble
Dynamic Conditional Correlation

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10.1016/j.ribaf.2018.12.001

Accepted manuscriptAccepted author manuscript, 1.81 MBLicence: CC BY-NC-ND

https://linkinghub.elsevier.com/retrieve/pii/S027553191830446X

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title = "The economic value of Bitcoin: A portfolio analysis of currencies, gold, oil and stocks",

abstract = "We assess the out-of-sample performance of Bitcoin within portfolios of various asset classes and a well-diversified portfolio under four strategies and estimate the economic gains net of transaction costs. We find statistically significant diversification benefits from the inclusion of Bitcoin which are more pronounced for commodities. Most importantly, the decrease in the overall portfolio risk due to the low correlation of Bitcoin with other assets is not offset by its high volatility. However, the inclusion of Bitcoin pays off little if investors accommodate a battery of economic instruments. Considering non-bubble conditions that are not marked by explosive prices in cryptocurrencies, we document substantially diminished benefits.",

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AB - We assess the out-of-sample performance of Bitcoin within portfolios of various asset classes and a well-diversified portfolio under four strategies and estimate the economic gains net of transaction costs. We find statistically significant diversification benefits from the inclusion of Bitcoin which are more pronounced for commodities. Most importantly, the decrease in the overall portfolio risk due to the low correlation of Bitcoin with other assets is not offset by its high volatility. However, the inclusion of Bitcoin pays off little if investors accommodate a battery of economic instruments. Considering non-bubble conditions that are not marked by explosive prices in cryptocurrencies, we document substantially diminished benefits.

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KW - Portfolio

KW - Economic value

KW - Non-Bubble

KW - Dynamic Conditional Correlation

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JO - Research in International Business and Finance

JF - Research in International Business and Finance

ER -

The economic value of Bitcoin: A portfolio analysis of currencies, gold, oil and stocks

Abstract

Keywords

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