EMPIRICAL EVIDENCE ON BITCOIN RETURNS AND PORTFOLIO VALUE

Sandip Mukherji

The International Journal of Business and Finance Research, 2019, vol. 13, issue 2, 71-81

Abstract: This paper studies 60 months of recent returns to examine relationships between bitcoin and 16 exchange- traded funds of currencies, bonds, stocks, commodities, and alternative assets. Bitcoin provides much higher returns, positive skewness, volatility and extreme returns, than all the other assets. Only stocks offer a better risk-return tradeoff than bitcoin. Bitcoin returns have very weak positive correlations with stocks, commodities, and alternatives. Only two funds of stocks and commodities have significant explanatory power of about 3% each for bitcoin returns. The full model of all the 16 funds explains only 15.09% of bitcoin returns. A partial model, with the six funds that are significant in the full model, explains 12.78% of bitcoin returns; 3 stock funds and 1 commodity fund have significant coefficients in this model. These findings indicate that bitcoin is a unique asset which is only weakly related to stocks and commodities. The results also show that small allocations to bitcoin improve the risk-return tradeoffs of stock and bond portfolios.

Keywords: Cryptocurrencies; Bitcoin; Return Distributions; Explanatory Factors; Optimal Portfolios (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2019
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