The diversification benefits of cryptocurrencies in multi-asset portfolios: cross-country evidence
Jéfferson Colombo (),
Fernando I. L. Cruz,
Luis H. Z. Paese and
Renan X. Cortes
No 542, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)
Using a sample of 21 developing and developed countries, we analyze whether a welldiversified investor of traditional assets (stocks, bonds, real estate, and commodities) may benefit from investing in cryptocurrencies. Country-specific analyses indicate that cryptocurrencies usually fit in the tangent portfolio (maximum Sharpe ratio) but no – or very little – in the minimum variance portfolio (MVP). Out-of-sample analysis indicates that even global portfolios that already benefits from international diversification may enjoy investing marginally in cryptocurrencies: mean-variance optimal and naive with cryptocurrencies outperformed otherwise identical portfolios in terms of risk-adjusted returns. Besides, exchange rate movements do not drive this better performance – it occurs for both local (all returns denominated in the local currency) and global perspectives (all returns in U.S. Dollars). We also find that cryptocurrencies’ diversification benefits occur both before and after the COVID-19 pandemics, with the 1/N portfolio with cryptocurrencies presenting the higher risk-adjusted returns. Our paper adds to the literature by analyzing the marginal effects of adding cryptocurrencies on a sample of developing and developed economies and considering up-to-date data following the COVID-19 crisis.
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://bibliotecadigital.fgv.br/dspace/bitstream/1 ... GVEESP%20%281%29.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:542
Access Statistics for this paper
More papers in Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil) Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().