Hedge fund strategies, performance &diversification: A portfolio theory & stochastic discount factor approach

The Diversification Benefits of Cryptocurrency Asset Categories and Estimation Risk: Pre and Post COVID-19

“…Defining λ, H t , and x ref t , as the risk-aversion coefficient, the covariance matrix, and the reference portfolio, respectively. For the reference portfolio, we use the 1/N naïve diversification rule, as in Newton et al (2021), among others. The implied excess return π t is computed as: Note: This table presents the numbers of significant Sharpe Ratios, and certainty equivalent returns for 36 portfolios of each cryptocurrency category, when considering the benchmark portfolio (equity and bonds).…”

“…where τ is a scalar for the reliability of the implied excess returns, which is set to 0.1625 as in Bessler, Opfer, and Wolff (2017), Platanakis and Urquhart (2019) and Newton et al (2021), among others. P is a binary matrix that identifies the number of securities associated with the views, and Q is the column vector of subjective returns.…”