The influence of Bitcoin on portfolio diversification and design

Journal article


Akhtaruzzaman, Md, Sensoy, Ahmet and Corbet, Shaen. (2020) The influence of Bitcoin on portfolio diversification and design. Finance Research Letters. 37, p. 101344. https://doi.org/10.1016/j.frl.2019.101344
AuthorsAkhtaruzzaman, Md, Sensoy, Ahmet and Corbet, Shaen
Abstract

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 and 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.

KeywordsBitcoin; DCC; optimal portfolio; hedge ratio; diversification
Year2020
JournalFinance Research Letters
Journal citation37, p. 101344
PublisherElsevier Ltd
ISSN1544-6123
Digital Object Identifier (DOI)https://doi.org/10.1016/j.frl.2019.101344
Scopus EID2-s2.0-85075501430
Research or scholarlyResearch
Page range1-8
Publisher's version
License
All rights reserved
File Access Level
Controlled
Output statusPublished
Publication dates
Online29 Oct 2019
Publication process dates
Accepted28 Oct 2019
Deposited07 Jun 2021
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https://acuresearchbank.acu.edu.au/item/8w35q/the-influence-of-bitcoin-on-portfolio-diversification-and-design

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