Time-varying dependence of Bitcoin

Adlane Haffar and Éric Le Fur

The Quarterly Review of Economics and Finance, 2022, vol. 86, issue C, 211-220

Abstract: This paper analyzes Bitcoin investment in terms of portfolio diversification. Over the period July 2011-April 2021, we use the copula-GARCH approach to test the time-varying dependence of Bitcoin in a portfolio composed of six stock markets (CAC40, DJIA, EUROSTOXX50, FTSE100, HANGSENG, and NIKKEI225). Our results reveal that volatility modeling provides better results with the Dynamic Conditional Correlation model. The performance of the portfolio is largely due to the high returns of Bitcoin which allows for better portfolio diversification. As a result, there is a mitigation of the extreme rates of return associated with crypto-currencies. Finally, while Bitcoin's contribution to the portfolio is more attributable to its risk than its return, it does play a role in stabilizing portfolio performance, for varying levels of risk.

Keywords: Bitcoin; Copula-GARCH model; Portfolio diversification; Portfolio risk; Robust MCD portfolio (search for similar items in EconPapers)
JEL-codes: C58 G11 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:86:y:2022:i:c:p:211-220

DOI: 10.1016/j.qref.2022.07.008

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