Diversification in financial and crypto markets

Myriam Ben Osman, Emilios Galariotis, Khaled Guesmi, Haykel Hamdi and Kamel Naoui

International Review of Financial Analysis, 2023, vol. 89, issue C

Abstract: This article investigates the conditional value at risk (CVaR) of two portfolio optimiza- tion approaches containing assets from the financial and crypto markets. We first catch the conditional interdependence structure among each variable through the vine-copula-GARCH model before merging it with the Mean-CVaR model. We then optimize each portfolio and find out the optimal allocation while evaluating the precise risk. The results indicate that the D-Vine copula is more suitable for both portfolios and that, when different conditional stock indices information are being taken into consideration, the crypto-market components can act as a weak hedge/safe haven against financial market indices. Furthermore, as CVaR is found to outperform the mean-variance of Markowitz in both portfolios, both risk measures similarly show that when including cryptocurrencies in a portfolio, the S&P 500 shall not be included. Additionally, the inclusion of Ethereum in a portfolio already containing Bitcoin does not boost the return.

Keywords: Bitcoin; Cryptocurrency; Hedge; Portfolio diversification; CVaR; Financial market (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:89:y:2023:i:c:s1057521923003010

DOI: 10.1016/j.irfa.2023.102785

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