Investing with cryptocurrencies - evaluating their potential for portfolio allocation strategies

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11320%2F21%3A10438366" target="_blank" >RIV/00216208:11320/21:10438366 - isvavai.cz</a>

Result on the web

<a href="https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=GxrzyzDbml" target="_blank" >https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=GxrzyzDbml</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1080/14697688.2021.1880023" target="_blank" >10.1080/14697688.2021.1880023</a>

Result language

angličtina

Original language name

Investing with cryptocurrencies - evaluating their potential for portfolio allocation strategies

Original language description

Cryptocurrencies (CCs) have risen rapidly in market capitalization over the past years. Despite striking volatility, their high average returns and low correlations have established CCs as alternative investment assets for portfolio and risk management. We investigate the benefits of adding CCs to well-diversified portfolios of conventional financial assets for different types of investors, including risk-averse, return-maximizing and diversification-seeking investors who may trade at different frequencies, namely, daily, weekly or monthly. We calculate out-of-sample performance and diversification benefits for the most popular portfolio-construction rules, including mean-variance optimization, risk-parity, and maximum-diversification strategies, as well as combined strategies. Our results demonstrate that CCs can improve the risk-return profile of portfolios, but their benefit depends on investor objectives. In particular, diversification strategies (maximizing the portfolio diversification index or equating risk contributions) draw appreciably on CCs and show, in line with spanning tests, CCs to be non-redundant extensions of the investment universe. However, when we introduce liquidity constraints via the LIBRO method to account for illiquidity of many CCs, out-of-sample performance drops considerably, while the diversification benefits persist. We conclude that the utility of CC investments strongly depends on investor characteristics.

Czech name

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Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

—

OECD FORD branch

10103 - Statistics and probability

Project

<a href="/en/project/GX19-28231X" target="_blank" >GX19-28231X: DyMoDiF - Dynamic Models for the Digital Finance</a><br>

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2021

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Quantitative Finance

ISSN

1469-7688

e-ISSN

—

Volume of the periodical

21

Issue of the periodical within the volume

11

Country of publishing house

GB - UNITED KINGDOM

Number of pages

29

Pages from-to

1825-1853

UT code for WoS article

000640553200001

EID of the result in the Scopus database

2-s2.0-85104183402