Portfolio diversification with virtual currency: Evidence from bitcoin

By Khaled Guesmi, Samir Saadi, I. Abid, Zied Ftiti. International Review of Financial Analysis, 2019

576 citations recorded by the source corpus.

The paper investigates the proprieties of Bitcoin in the financial markets. Specifically, we explore the conditional cross effects and volatility spillover between Bitcoin and financial indicators using different multivariate GARCH specifications. The nature of interaction between Bitcoin and financial variables and their transmission mechanisms are taken into account when analyzing the diversification and hedging effectiveness across gold asset and stock market. Our findings suggest that all models confirm the significant returns and volatility spillovers. More importantly, we find that VARMA (1,1)-DCC-GJR-GARCH is the best-fit model for modeling the joint dynamics of a variety of financial assets. We also show that a short position in the Bitcoin market allows hedging the risk investment for all different financial assets. Finally, hedging strategies involving gold, oil, equities and Bitcoin reduce considerably the portfolio's risk, as compared to the risk of the portfolio made up of gold, oil and equities only.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/04b979c165b59419c22b30a04ee49e8905beff6f

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Citations in the corpus

Does global economic uncertainty matter for the volatility and hedging effectiveness of Bitcoin? (2019, methodology): “3 as equities, bonds, and commodities (e.g., Bouri et al., 2017a; Baur et al., 2018; Corbet et al., 2018b; Guesmi et al., 2018; Ji et al., 2018), suggesting significant benefits for portfolio diversification and risk management (Brière et al.”
Does bitcoin co-move and share risk with Sukuk and world and regional Islamic stock markets? Evidence using a time-frequency approach (2020, background): “, 2018; Sensoy, 2019; Shrestha, 2019), and risk and return spillover to other assets (Corbet et al., 2018; Guesmi et al., 2018; Selmi et al., 2018; Matkovskyy and Jalan, 2019; Pal and Mitra, 2019; Salisu et al., 2019; Shahzad et al., 2019).”
Should investors include Bitcoin in their portfolios? A portfolio theory approach (2020, background): “Guesmi et al (2018) show that Bitcoin can be a hedge against many different financial assets.”