Does Bitcoin Add Any Value To The Investment Portfolios In Emerging Markets? A Case From Tehran Stock Exchange

Hossein Dastkhan and Hossein Saber
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Hossein Dastkhan: Department of Financial Engineering, Faculty of Financial Science, Kharazmi University, Tehran, Iran
Hossein Saber: Department of Financial Engineering, Faculty of Financial Science, Kharazmi University, Tehran, Iran

Annals of Financial Economics (AFE), 2024, vol. 19, issue 03, 1-23

Abstract: In this study, we investigate how adding Bitcoin can influence the investment portfolios. For this purpose, we consider a portfolio including Bitcoin and the five major sector indices of the Tehran Stock Exchange (TSE). At first, the asset returns are predicted through an estimation model based on higher moments. In the second step, the properties of Bitcoin in the face of other assets in a portfolio are studied by the asymmetric dynamic conditional correlation (ADCC) model. Then, the optimal weights in the portfolios are estimated. Accordingly, we used four portfolio optimization models with different objective functions, including a hybrid function of the higher moments, predicted risk from the ADCC model, and maximizing Sharpe and Sortino ratios. The out-of-sample results showed the relative efficiency of the proposed model in predicting the asset returns in Tehran Stock Exchange. In addition, the results of the ADCC model showed that Bitcoin plays a risk-hedging role for the pharmaceutical and banking sectors in TSE. We also know Bitcoin as a safe haven for the banking, petrochemical, metals, automobile, and pharmaceutical sectors. The results of portfolio selection also prove the effectiveness of adding Bitcoin with a maximum weight of 10% in the investment portfolios.

Keywords: Finance; portfolio optimization; Bitcoin; diversification; safe haven; hedging (search for similar items in EconPapers)
JEL-codes: C58 G11 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S201049522450012X

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