On the diversification benefits of cryptocurrencies

• Autor(a) principal: Cavazzi, Matteo
• Data de Publicação: 2023
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/41452
• topic: Cryptocurrencies; Diversification; Risk­-return tradeoff; Transaction costs; Moedas criptográficas; Diversificação; Tradeoff risco­-retorno; Custos de transação; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

Whether cryptocurrencies are to be considered as a means of payment or a speculative asset and whether they are best employed as a diversifier or hedge is still a vexata quaestio. In this paper I question the diversification abilities of cryptocurrencies by adding them to portfolios of different instruments and comparing the performance of the portfolios with and without cryptocurrencies. At the end I add transaction costs to see if, after accounting for them, the same results would hold. I find that adding cryptocurrencies does not improve diversification. For portfolios formed with the 1/N and optimized Sharpe ratio strategies adding cryptocurrencies does not reduce risks but it improves the risk return tradeoff. Even after accounting for transaction costs, this improvement remains. For the global minimum variance portfolios adding cryptocurrencies reduces risks but does not improve the risk return tradeoff.