Investing with cryptocurrencies - A liquidity constrained investment approach

Simon Trimborn (), Mingyang Li and Wolfgang Härdle

No 2017-014, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: Cryptocurrencies have left the dark side of the finance universe and become an object of study for asset and portfolio management. Since they have a low liquidity compared to traditional assets, one needs to take into account liquidity issues when one puts them into the same portfolio. We propose use a Liquidity Bounded Risk-return Optimization (LIBRO) approach, which is a combination of the Markowitz framework under the liquidity constraints. The results show that cryptocurrencies add value to a portfolio and the optimization approach is even able to increase the return of a portfolio and lower the volatility risk.

Keywords: crypto-currency; CRIX; portfolio investment; asset classes; blockchain (search for similar items in EconPapers)
JEL-codes: C01 C58 G11 (search for similar items in EconPapers)
Date: 2017
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Related works:
Journal Article: Investing with Cryptocurrencies—a Liquidity Constrained Investment Approach* (2020)
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