The influence of Bitcoin on portfolio diversification and design
Author
Akhtaruzzaman, M.
Şensoy, Ahmet
Corbet, S.
Date
2020Source Title
Finance Research Letters
Print ISSN
1544-6123
Publisher
Elsevier
Volume
37
Pages
101344
Language
English
Type
ArticleItem Usage Stats
119
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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.