Is Bitcoin a better portfolio diversifier than gold? A copula and sectoral analysis for China

Kim Hung Pho, Sel Ly, Richard Lu, Thi Hong Van Hoang and Wing-Keung Wong

International Review of Financial Analysis, 2021, vol. 74, issue C

Abstract: This paper aims to compare Bitcoin with gold in the diversification of Chinese portfolios using daily data over the 2010–2020 period. We propose a new development of copula-based joint distribution function of returns to simulate the Value-at-Risk and expected shortfall of portfolios including Bitcoin (or gold) and those without it. The stochastic dominance method is also used to compare the return distributions of the three types of portfolios. Empirical results show that gold is a better portfolio diversifier than Bitcoin as it helps better reduce the risk of portfolios. On the other hand, Bitcoin better increases the return but also increases the risk. The stochastic dominance results further show that portfolios diversified by gold dominate those diversified by Bitcoin. Based on these findings, we conclude that in China, gold is a better portfolio diversifier than Bitcoin for risk-averse investors. However, for risk-seeking investors, Bitcoin can be a better choice. This result is found to be robust to the time, frequency and currency effects.

Keywords: Bitcoin; Gold; Sectoral stocks; Bonds; Copula; Value-at-Risk; Expected shortfall; Stochastic dominance (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:74:y:2021:i:c:s105752192100017x

DOI: 10.1016/j.irfa.2021.101674

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