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Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin

Brière, Marie; Oosterlinck, Kim; Szafarz, Ariane (2015), Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin, Journal of Asset Management, 16, 6, p. 365–373. 10.1057/jam.2015.5

Type
Article accepté pour publication ou publié
External document link
https://dx.doi.org/10.2139/ssrn.2324780
Date
2015
Journal name
Journal of Asset Management
Volume
16
Number
6
Publisher
Palgrave
Pages
365–373
Publication identifier
10.1057/jam.2015.5
Metadata
Show full item record
Author(s)
Brière, Marie
Laboratoire d'Economie de Dauphine [LEDa]
Oosterlinck, Kim
Université Libre de Bruxelles
Szafarz, Ariane
Département d'économie appliquée de l'université libre de Bruxelles [Dulbéa]
Université Libre de Bruxelles
Centre Emile Bernheim
CERMi
Abstract (EN)
Bitcoin (BTC) is a major virtual currency. Using weekly data over the 2010–2013 period, we analyze a BTC investment from the standpoint of a US investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, BTC investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that BTC investment offers significant diversification benefits. We show that the inclusion of even a small proportion of BTCs may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior that may not last in the medium or long run.
Subjects / Keywords
Bitcoin; risk; return; diversification; virtual currency
JEL
E44 - Financial Markets and the Macroeconomy
G01 - Financial Crises
F39 - Other
O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
G15 - International Financial Markets
G11 - Portfolio Choice; Investment Decisions

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