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Cryptocurrencies: Does their inclusion improve the risk-return characteristics of already well-diversified portfolios?

Kozian, Luca (2022) Cryptocurrencies: Does their inclusion improve the risk-return characteristics of already well-diversified portfolios?

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Abstract:In this thesis, the extent to which the inclusion of Cryptocurrencies into already well-diversified portfolios can increase the portfolio´s overall risk-return characteristics is investigated. This is a relevant issue since previous research already showed risk-return benefits from the inclusion of Cryptocurrencies, but it remained questionable whether this holds true given more recent economic developments. A mean-variance spanning and intersection framework similar to those of Huberman and Kandel (1987) and Kan and Zhou (2008) was used to test this. The results did hereby show that Cryptocurrencies indeed improved the already well-diversified portfolio´s risk-return characteristics in the given sample period between March 18th, 2018, and May 20th, 2022. However, when divided into the two sub-periods of up to (and including) December 31st, 2019, and since January 1st, 2020, the results show slightly different benefits in the second sub-period. There investors with a specific level of risk-aversion did not reap benefits while all others did.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Keywords:Cryptocurrencies, Bitcoin, CRIX, Mean-variance spanning, Mean-variance intersection, Sharpe ratio, Diversification, Covid-19
Link to this item:https://purl.utwente.nl/essays/90996
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