Bitcoin and Ethereum capabilities against investment philosophies and portfolio integration

• Autor(a) principal: Lima, Felipe Oliveira
• 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/10773/37655
• topic: Cryptocurrencies; Volatility models; Hedging; Portfolio optimizations

The dissertation investigates the properties of Bitcoin and Ethereum relative to common investment philosophies (bond, real estate, dividend, growth, value and ESG) and the impact on portfolio adoptions to find which strategy benefits the most with such adoption and to give personalized suggestions to investors according to their individual philosophy. Firstly, the lowest hedge ratios obtained using short positions in the cryptocurrencies were with bond ETFs, followed by mid-cap growth from the S&P500 for Bitcoin and small-cap growth from the S&P500 for Ethereum. The period of the pandemic and the structural break showed overall lower needed coverage for the periods before than the ones during or after. The optimal weights were for all periods very close to zero. Secondly, the effectiveness of the hedge was largely ineffective for both short and long positions for the full sample, however large-cap growth from the Russell 1000 was the highest hedge (close to 1) with the pandemic and the structural break showing higher effectiveness during/after the break period. The mid-cap growth from the S&P with long positions on cryptocurrencies provided a perfect hedge effectiveness before the pandemic and large-cap growth from the Russell for both short positions in the structural break. Thirdly, the methodology suggested by Ciner et al. (2013) indicates that cryptocurrencies are diversifiers, and the possible properties of hedge and safe haven are lost during the pandemic and after the structural break, suggesting that cryptocurrencies are not safe havens for investment philosophies. Fourthly, the portfolio analysis of the adoption of the cryptocurrencies lead to better annualized returns, higher annualized volatilities and mostly improvements in the Sharpe ratios with bond investors followed by real estate, dividend, value, growth and ESG investors, the ones that benefit the most in terms of risk adjusted returns.