Portfolio diversification with virtual currency: Evidence from bitcoin

Khaled Guesmi, Samir Saadi, Ilyes Abid and Zied Ftiti ()

International Review of Financial Analysis, 2019, vol. 63, issue C, 431-437

Abstract: The paper investigates the proprieties of Bitcoin in the financial markets. Specifically, we explore the conditional cross effects and volatility spillover between Bitcoin and financial indicators using different multivariate GARCH specifications. The nature of interaction between Bitcoin and financial variables and their transmission mechanisms are taken into account when analyzing the diversification and hedging effectiveness across gold asset and stock market. Our findings suggest that all models confirm the significant returns and volatility spillovers. More importantly, we find that VARMA (1,1)-DCC-GJR-GARCH is the best-fit model for modeling the joint dynamics of a variety of financial assets. We also show that a short position in the Bitcoin market allows hedging the risk investment for all different financial assets. Finally, hedging strategies involving gold, oil, equities and Bitcoin reduce considerably the portfolio's risk, as compared to the risk of the portfolio made up of gold, oil and equities only.

Keywords: Virtual currencies; Bitcoin; GARCH models; Hedging; Diversification (search for similar items in EconPapers)
JEL-codes: F3 G12 Q43 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (252)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:63:y:2019:i:c:p:431-437

DOI: 10.1016/j.irfa.2018.03.004

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