Cryptocurrencies in institutional investors’ portfolios: Evidence from industry stop-loss rules

Jędrzej Białkowski

Economics Letters, 2020, vol. 191, issue C

Abstract: Cryptocurrencies are characterized by very high volatility, which makes them unlikely candidates for institutional investors’ portfolios. Our paper examines whether the application of industry stop-loss rules makes investment in cryptocurrencies more feasible for institutional investors. We show that volatility and returns on investment in a single cryptocurrency or a portfolio of cryptoassets are nearly halved when stop-loss rules are in place. Moreover, our analysis shows that the survival rate of long positions in cryptocurrencies does not exceed 35%. We conclude that the application of stop-loss rules may help in managing the risk of investment in cryptoassets. Our results also highlight the importance of the development of cryptoasset-specific stop-loss rules to deal with the low survival rate.

Keywords: Bitcoin; Cryptocurrencies; Institutional investor; Portfolio optimization; Stop-loss rules (search for similar items in EconPapers)
JEL-codes: G1 G11 G2 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:191:y:2020:i:c:s0165176519304227

DOI: 10.1016/j.econlet.2019.108834

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