Optimal vs. Naive Diversification in the Cryptocurrencies Market: The Role of Time-Varying Moments and Transaction Costs

Heming Chen and Xiaojing Cai

Papers from arXiv.org

Abstract: This study investigates three central questions in portfolio optimization. First, whether time-varying moment estimators outperform conventional sample estimators in practical portfolio construction. Second, whether incorporating a turnover penalty into the optimization objective can improve out-of-sample performance. Third, what type of optimal portfolio strategies can consistently outperform the naive 1/N benchmark. Using empirical evidence from the cryptocurrencies market, this paper provides comprehensive answers to these questions. In the process, several additional findings are uncovered, offering further insights into the dynamics of portfolio construction in highly volatile asset classes.

Date: 2025-01, Revised 2025-11
New Economics Papers: this item is included in nep-fmk, nep-pay and nep-rmg
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