Verification of Investment Opportunities on the Cryptocurrency Market within the Markowitz Framework

Pawel Sakowski and Anna Turovtseva

No 2020-41, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: The aim of the paper is to reveal if the classical approach for asset allocation can be reflected on an innovative market of cryptocurrencies. Markowitz rebalanced portfolio technique is employed for this purpose. The filtering of coins for optimization is done on the whole scope of cryptocurrencies available for the time horizon of the study and only 52 coins get into the portfolio at least once. There are four primary strategies produced within a set of assumed optimization parameters together with four benchmarks for each. The benchmarks are Bitcoin buy-and-hold, S&P500 buy-and-hold, equally weighted portfolio and portfolio weighted by market capitalization. While looking at the performance measures, it is concluded that Markowitz strategies outperform their benchmarks for every set of parameters. The results of the sensitivity analysis suggest that there is a big potential in finding profitable strategy of investment on cryptocurrencies. The change of parameters: look-back period, rebalancing window, transaction cost as well as optimization objective impact the strategies performance significantly. Eventually, there appear a strategy in the sensitivity analysis, which performs better than the primary ones due to the prolonged parameters of look-back period and rebalancing window.

Keywords: Portfolio analysis; Markowitz framework; cryptocurrencies; investment strategies; asset allocation (search for similar items in EconPapers)
JEL-codes: C20 C22 C61 C80 G14 G17 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2020
New Economics Papers: this item is included in nep-fmk, nep-ore and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2020-41

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