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Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoins

Marie Brière (), Kim Oosterlinck () and Ariane Szafarz

No 13-031, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Bitcoin is a major virtual currency. Using weekly data over the 2010-2013 period, we analyze a Bitcoin investment from the standpoint of a U.S. investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Bitcoin investment has highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets is remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins, say 3%, may dramatically improve the risk-return trade-off of welldiversified portfolios.

Keywords: Bitcoin; risk; return; diversification; virtual currency (search for similar items in EconPapers)
JEL-codes: G11 G15 O16 F39 G10 E44 (search for similar items in EconPapers)
Date: 2013-09-17
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Related works:
Working Paper: Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoins (2015)
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