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Diversification, integration and cryptocurrency market

Sofia Anyfantaki, Stelios Arvanitis and Nikolas Topaloglou
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Stelios Arvanitis: Athens University of Economics and Business

No 244, Working Papers from Bank of Greece

Abstract: We investigate the degree to which cryptocurrencies provide diversification benefits to an investor. We use a stochastic spanning methodology to construct optimal portfolios with and without cryptocurrencies, evaluating their comparative performance both in- and out-of-sample. Empirical analysis seems to indicate that the expanded investment universe with cryptocurrencies dominates the traditional one with stocks, bonds and cash, yielding potential diversification benefits and providing better investment opportunities for some risk averse investors. We further explain our results by documenting that cryptocurrency markets are segmented from the equity and bond markets.

Keywords: cryptocurrencies; portfolio choice; second order stochastic dominance; stochastic spanning; diversification; market integration; market segmentation (search for similar items in EconPapers)
JEL-codes: C12 C14 D81 G11 (search for similar items in EconPapers)
Pages: 33
Date: 2018-04
New Economics Papers: this item is included in nep-ore and nep-pay
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