Measuring Downside Risk in Portfolios with Bitcoin

Dejan Živkov (), Slavica Manic, Jasmina Duraskovic and Dejan Viduka
Additional contact information
Slavica Manic: Faculty of Economics in Belgrade, University of Belgrade, Serbia
Jasmina Duraskovic: Project Management College, Belgrade, Serbia
Dejan Viduka: Faculty of Applied Management, Economics and Finance in Belgrade, Serbia

Czech Journal of Economics and Finance (Finance a uver), 2021, vol. 71, issue 2, 178-200

Abstract: This study aims to determine which auxiliary asset – S&P500, SHCOMP, the U.S. 10Y bond, gold, Brent or corn, in combination with Bitcoin has the best downside risk-minimizing performances. Six portfolios are constructed via an optimal DCC-GARCH model, while for downside risk measures, we use parametric and semiparametric Value-at-Risk and Conditional Value-at-Risk. All selected auxiliary assets have very low dynamic correlation with Bitcoin, which classifies them as good diversifiers. According to parametric results, S&P500 has the best downside risk-minimizing output, while SHCOMP and gold take second and third place. However, when higher moments of portfolios are taken into account, the results change significantly. Due to very high kurtosis and negative skewness, portfolio with S&P500 has among the worst semiparametric downside risk results. On the other hand, SHCOMP index and gold have relatively favourable third and fourth moments’ characteristics, which pushes them to the first and second place of the best auxiliary assets when modified downside risk measures are at stake. We also calculate Sharpe ratio, which suggests that portfolio with gold has by far the best return/risk characteristics.

Keywords: Bitcoin; parametric and semiparametric downside risk measures; DCC-GARCH (search for similar items in EconPapers)
JEL-codes: C14 C22 G11 G15 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journal.fsv.cuni.cz/mag/article/show/id/1485 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:71:y:2021:i:2:p:178-200

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().