{"title":"Beyond Bitcoin: A Statistical Comparison of Leading Cryptocurrencies and Fiat Currencies and Their Impact on Portfolio Diversification","authors":"Stefan Ehlers, Kolja Gauer","doi":"10.3905/jai.2019.1.072","DOIUrl":null,"url":null,"abstract":"Cryptocurrencies have developed very dynamically although their future role is yet unclear. In any event, they are too big to ignore. The purpose of this article is to contribute to the understanding of cryptocurrencies in an individual and in a portfolio context. The study is based on daily closing prices of leading cryptocurrencies (Bitcoin, Ethereum, Ripple, Litecoin, and Dash) and fiat currencies (EUR, GBP, CHF, CAD, and JPY), all measured against USD. The analysis is threefold: First, the authors analyze basic statistical properties, such as correlation and autocorrelation of returns. Second, they perform a Kolmogorov–Smirnov test (KS test) and a variance ratio test (VRT) with heteroscedasticity adjustment. Third, they solve more than 4,800 optimization problems to analyze the impact of individual crypto- and fiat currencies on portfolio diversification. Among other findings, the authors find that Bitcoin, Ethereum, Dash, CAD, JPY, and EUR contribute most to reduce the variance of a mixed portfolio. In a portfolio consisting of cryptocurrencies only, Bitcoin and Ripple have the largest diversification effect. The findings provide insights for investors who focus on minimum variance portfolios or, more generally, for investors who seek to reduce return volatility exposure, as well as for monetary authorities, cryptocurrency issuers, and providers of market infrastructure. TOPICS: Real assets/alternative investments/private equity, statistical methods, portfolio construction","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.4000,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"14","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Alternative Investments","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jai.2019.1.072","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 14
Abstract
Cryptocurrencies have developed very dynamically although their future role is yet unclear. In any event, they are too big to ignore. The purpose of this article is to contribute to the understanding of cryptocurrencies in an individual and in a portfolio context. The study is based on daily closing prices of leading cryptocurrencies (Bitcoin, Ethereum, Ripple, Litecoin, and Dash) and fiat currencies (EUR, GBP, CHF, CAD, and JPY), all measured against USD. The analysis is threefold: First, the authors analyze basic statistical properties, such as correlation and autocorrelation of returns. Second, they perform a Kolmogorov–Smirnov test (KS test) and a variance ratio test (VRT) with heteroscedasticity adjustment. Third, they solve more than 4,800 optimization problems to analyze the impact of individual crypto- and fiat currencies on portfolio diversification. Among other findings, the authors find that Bitcoin, Ethereum, Dash, CAD, JPY, and EUR contribute most to reduce the variance of a mixed portfolio. In a portfolio consisting of cryptocurrencies only, Bitcoin and Ripple have the largest diversification effect. The findings provide insights for investors who focus on minimum variance portfolios or, more generally, for investors who seek to reduce return volatility exposure, as well as for monetary authorities, cryptocurrency issuers, and providers of market infrastructure. TOPICS: Real assets/alternative investments/private equity, statistical methods, portfolio construction
期刊介绍:
The Journal of Alternative Investments (JAI) provides you with cutting-edge research and expert analysis on managing investments in hedge funds, private equity, distressed debt, commodities and futures, energy, funds of funds, and other nontraditional assets. JAI is the official publication of the Chartered Alternative Investment Analyst Association (CAIA®). JAI provides you with challenging ideas and practical tools to: •Profit from the growth of hedge funds and alternatives •Determine the optimal mix of traditional and alternative investments •Measure and track portfolio performance •Manage your alternative investment portfolio with proven risk management practices