Abstract
Does Bitcoin lead to Diversification Gains?
by
Prateek Bedi
Achievement of diversification gains is one of the most important objectives of portfolio optimisation. We aim to ascertain the magnitude and robustness of diversification gains for an already diversified portfolio due to inclusion of Bitcoin from the standpoint of an Indian investor. We use eight global indices to build a portfolio spread across six asset classes namely money market, equity, fixed income, commodities, real estate and alternative investments for adequate representation of existing investment choices. We employ three investment strategies viz. 'long only', 'constrained' & 'equally weighted' to construct optimal portfolios. Instead of the traditional mean-variance optimization methodology, we apply mean-CVaR approach for optimal allocation of weights to assets. Our findings suggest that portfolios containing Bitcoin have superior risk-adjusted returns as compared to portfolios without Bitcoin for all three strategies. Results suggest relatively stable weights across the investment horizon for Bitcoin in 'long only' strategy as compared to 'constrained' framework. The findings are relevant for institutional and retail investors looking to earn higher risk-adjusted returns for a portfolio denominated in Indian rupee. The study highlights the immense potential of Bitcoin as an investment alternative and also adds fresh evidence to the scarce literature on Bitcoin from a financial perspective.
Committee
Workshop
Key Dates
Communication
First Conference Link
Second Conference Link