Large cryptocurrency-portfolios: efficient sorting with leverage constraints

Yang Yang and Zhao Zhao

Applied Economics, 2021, vol. 53, issue 21, 2398-2411

Abstract: Using daily data of the 100 largest cryptocurrencies, we construct the efficient sorting portfolios and the quantile-based sorting portfolios based on ten factors. We find two price factors that can well predict cryptocurrency returns. The efficient sorting portfolios outperform the traditional quantile-based portfolios and the naive $$1/N$$1/N portfolios. The outperformance is largely due to the use of DCC-NL estimator, which captures the dynamic of covariance matrix and meanwhile addresses the curse of dimensionality. In addition, leverage constraints are important for cryptocurrency portfolios to control their risks.

Date: 2021
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DOI: 10.1080/00036846.2020.1859457

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