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      The influence of Bitcoin on portfolio diversification and design

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      Embargo Lift Date: 2022-11-01
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      Author
      Akhtaruzzaman, M.
      Şensoy, Ahmet
      Corbet, S.
      Date
      2020
      Source Title
      Finance Research Letters
      Print ISSN
      1544-6123
      Publisher
      Elsevier
      Volume
      37
      Pages
      101344
      Language
      English
      Type
      Article
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      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.
      Keywords
      Bitcoin
      DCC
      Optimal portfolio
      Hedge ratio
      Diversification
      Permalink
      http://hdl.handle.net/11693/53018
      Published Version (Please cite this version)
      https://doi.org/10.1016/j.frl.2019.101344
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