Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin

Marie Brière (marie.briere@amundi.com), Kim Oosterlinck and Ariane Szafarz

No 13-031, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Bitcoin is a major virtual currency. Using weekly data over the 2010-2013 period, we analyze a Bitcoin investment from the standpoint of a U.S. investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, Bitcoin investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior which may not last in the medium or long run.

Keywords: Bitcoin; risk; return; diversification; virtual currency (search for similar items in EconPapers)
JEL-codes: E44 F39 G10 G11 G15 O16 (search for similar items in EconPapers)
Pages: 18 p.
Date: 2013-09-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

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Related works:
Journal Article: Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoins (2015)
Working Paper: Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin (2015)
Working Paper: Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoins (2015)
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