Cryptocurrencies as an Asset Class — Holding Bitcoin in German Equities Portfolios

Mario Straßberger

Chapter 21 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 453-474 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We examine the diversification benefits and hedging abilities of cryptocurrencies like Bitcoin for German stock market investors. From an economic perspective, we interpret cryptocurrencies as an additional asset class and incorporate Bitcoin into portfolios of equities. Using German stock market data and Bitcoin data from January 2012 to December 2020, we yearly add Bitcoin to different long equities portfolios and apply performance and risk measures on them. Further, we use Bitcoin for hedging equities differing positive and negative stock market movements. Our results show improved performances of equities-Bitcoin portfolios over equities-only portfolios but limited properties of Bitcoin as a means to absorb market downturns, suggesting that Bitcoin can provide substantially enhanced portfolio risk-return exposures, but is constrained efficient as a hedge to the stock market.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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