Caveat Emptor: Does Bitcoin Improve Portfolio Diversification?

Gasser, S.; Eisl, Alexander; Weinmayer, Karl

doi:10.2139/ssrn.2408997

Cited by 95 publications

(90 citation statements)

References 16 publications

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“…By considering the exchange rates of Bitcoin against USD for the period from 23 July 2010 to 27 December 2013, the authors showed that the inclusion of even a small proportion of cryptocurrency may notably improve the risk-return trade-off of well-diversified portfolios. Eisl et al (2015) provided very similar results in a conditional value-at-risk framework. They found that despite the fact that "an investment in Bitcoin increases the CVaR of a portfolio, this additional risk is overcompensated by high returns leading to better risk-return ratios".…”

Section: Introductionmentioning

confidence: 59%

Financial Bubbles: A Study of Co-Explosivity in the Cryptocurrency Market

Agosto

Cafferata

2020

Risks

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Cryptocurrencies have recently captured the interest of the econometric literature, with several works trying to address the existence of bubbles in the price dynamics of Bitcoins and other cryptoassets. Extremely rapid price accelerations, often referred to as explosive behaviors, followed by drastic drops pose high risks to investors. From a risk management perspective, testing the explosiveness of individual cryptocurrency time series is not the only crucial issue. Investigating co-explosivity in the cryptoassets, i.e., whether explosivity in one cryptocurrency leads to explosivity in other cryptocurrencies, allows indeed to take into account possible shock propagation channels and improve the prediction of market collapses. To this aim, our paper investigates the relationships between the explosive behaviors of cryptocurrencies through a unit root testing approach.

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Section: Introductionmentioning

confidence: 59%

Financial Bubbles: A Study of Co-Explosivity in the Cryptocurrency Market

Agosto

Cafferata

2020

Risks

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“…These factors include internet search (see, among others, Kristoufek, 2013), word-of-mouth information on social media, and information on google trends (Garcia et al, 2014). Eisl et al (2015) concentrate on the benefits of adding Bitcoin to an equity portfolio. Bitcoin is considered to be a speculative investment by Yermack (2013) and digital gold by Popper (2015).…”

Section: Introductionmentioning

confidence: 99%

On the return-volatility relationship in the Bitcoin market around the price crash of 2013

2017

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The authors examine the relation between price returns and volatility changes in the Bitcoin market using a daily database denominated in US dollar. The results for the entire period provide no evidence of an asymmetric return-volatility relation in the Bitcoin market. The authors test if there is a difference in the return-volatility relation before and after the price crash of 2013 and show a significant inverse relation between past shocks and volatility before the crash and no significant relation after. This finding shows that, prior to the price crash of December 2013, positive shocks increased the conditional volatility more than negative shocks. This inverted asymmetric reaction of Bitcoin to positive and negative shocks is contrary to what one observes in equities. As leverage effect and volatility feedback do not adequately explain this reaction, the authors propose the safe-haven effect (Baur, Asymmetric volatility in the gold market, 2012). They highlight the benefits of adding Bitcoin to a US equity portfolio, especially in the pre-crash period. Robustness analyses show, among others, a negative relation between the US implied volatility index (VIX) and Bitcoin volatility. Those additional analyses further support the findings and provide useful information for economic actors who are interested in adding Bitcoin to their equity portfolios or are curious about the capabilities of Bitcoin as a financial asset. JEL G11 G15

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“…Brandvold et al (2015) and Bouoiyour et al (2016) focus on price discovery in the Bitcoin market, while Eisl et al (2015) concentrate on the benefits of adding Bitcoin to an equity portfolio. Bitcoin is considered to be a speculative investment by Yermack (2013) and digital gold by Popper (2015).…”

Section: Introductionmentioning

confidence: 99%

On the Return-Volatility Relationship in the Bitcoin Market around the Price Crash of 2013

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe authors examine the relation between price returns and volatility changes in the Bitcoin market using a daily database denominated in various currencies. The results for the entire period provide no evidence of an asymmetric return-volatility relation in the Bitcoin market. They test if there is a difference in the return-volatility relation before and after the price crash of 2013 and show a significant inverse relation between past shocks and volatility before the crash and no significant relation after. This finding shows that, prior to the price crash of December 2013, positive shocks increased the conditional volatility more than negative shocks. This inverted asymmetric reaction of Bitcoin to positive and negative shocks is contrary to what the authors observe in equities. As leverage effect and volatility feedback don't adequately explain this reaction, they propose the safe-haven effect (Baur, Asymmetric volatility in the gold market, 2012). The authors highlight the benefits of adding Bitcoin to a US equity portfolio, especially in the pre-crash period. Robustness analyses show, among others, a negative relation between the US implied volatility index (VIX) and Bitcoin volatility. Those additional analyses further support their findings and provide useful information for economic actors who are interested in adding Bitcoin to their equity portfolios or are curious about the capabilities of Bitcoin as a financial asset. JEL G11 G15

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Caveat Emptor: Does Bitcoin Improve Portfolio Diversification?

Cited by 95 publications

References 16 publications

Financial Bubbles: A Study of Co-Explosivity in the Cryptocurrency Market

Financial Bubbles: A Study of Co-Explosivity in the Cryptocurrency Market

On the return-volatility relationship in the Bitcoin market around the price crash of 2013

On the Return-Volatility Relationship in the Bitcoin Market around the Price Crash of 2013

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