Stochastic dominance performance comparison of optimal fiat and cryptocurrency portfolios

Fathi Abid and Ons Triki

International Journal of Monetary Economics and Finance, 2025, vol. 18, issue 1, 76-100

Abstract: In this study, three replication-based portfolio optimisation strategies are explicitly compared for their effectiveness. Specifically, the tangency portfolio, the risk parity, and the minimum variance portfolio were used and applied to the excess returns of selected fiat and cryptocurrencies in terms of the U.S. dollar (USD). Employing fourth-order stochastic dominance with resampling and the fourth-order stochastic dominance zone over a construction-dominated portfolio, the study examined seven large-cap cryptocurrencies, as well as six major fiat currencies. The rolling window technique is used to replicate optimal currency portfolios by considering the time-varying premiums and optimal portfolio structures. Findings show that there is no significant stochastic dominance between strategies and portfolio groups. Even though cryptocurrencies seem more volatile, using them as part of a diversification plan has no benefits and has no effect on lowering risk or increasing returns.

Keywords: portfolio optimisation; stochastic dominance; fiat-crypto currencies; risk parity; mean-variance analysis. (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:18:y:2025:i:1:p:76-100

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