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Can cryptocurrencies enhance portfolio performance?

Henningsson, Mortimer LU (2019) NEKH01 20182
Department of Economics
Abstract
This thesis utilizes mean-variance analysis and Sharpe-ratio optimization to explore the possibilities of adding cryptocurrencies to enhance portfolio performance. While earlier such research has focused on Bitcoin alone, this study examines 17 of the largest cryptocurrencies, selected based on their market capitalization. In addition to examining these cryptocurrencies’ potential as investments, a brief review of the types of cryptocurrencies and each of the cryptocurrency’s distinguishing features is presented. Results show that including cryptocurrencies leads to an improved Sharpe-ratio compared to a portfolio of traditional assets only, and that there is benefit in diversifying one’s position in cryptocurrencies. It should be noted,... (More)
This thesis utilizes mean-variance analysis and Sharpe-ratio optimization to explore the possibilities of adding cryptocurrencies to enhance portfolio performance. While earlier such research has focused on Bitcoin alone, this study examines 17 of the largest cryptocurrencies, selected based on their market capitalization. In addition to examining these cryptocurrencies’ potential as investments, a brief review of the types of cryptocurrencies and each of the cryptocurrency’s distinguishing features is presented. Results show that including cryptocurrencies leads to an improved Sharpe-ratio compared to a portfolio of traditional assets only, and that there is benefit in diversifying one’s position in cryptocurrencies. It should be noted, that the rigour of these results is dependent on the assumption of normally distributed returns, which is rejected for both cryptocurrencies and traditional assets by the Anderson-Darling test of normality. Furthermore, cryptocurrencies are high-risk assets and speculative investments with limited historical data available, all factors which call for caution in drawing far-reaching conclusions. Nonetheless, the promising results of this study, warrants further research into the risk and return characteristics of not only Bitcoin but a larger set of cryptocurrencies. (Less)
Please use this url to cite or link to this publication:
author
Henningsson, Mortimer LU
supervisor
organization
course
NEKH01 20182
year
type
M2 - Bachelor Degree
subject
keywords
cryptocurrencies, Bitcoin, asset selection, diversification, portfolio strategy
language
English
id
8971420
date added to LUP
2019-03-05 09:04:04
date last changed
2019-03-05 09:04:04
@misc{8971420,
  abstract     = {This thesis utilizes mean-variance analysis and Sharpe-ratio optimization to explore the possibilities of adding cryptocurrencies to enhance portfolio performance. While earlier such research has focused on Bitcoin alone, this study examines 17 of the largest cryptocurrencies, selected based on their market capitalization. In addition to examining these cryptocurrencies’ potential as investments, a brief review of the types of cryptocurrencies and each of the cryptocurrency’s distinguishing features is presented. Results show that including cryptocurrencies leads to an improved Sharpe-ratio compared to a portfolio of traditional assets only, and that there is benefit in diversifying one’s position in cryptocurrencies. It should be noted, that the rigour of these results is dependent on the assumption of normally distributed returns, which is rejected for both cryptocurrencies and traditional assets by the Anderson-Darling test of normality. Furthermore, cryptocurrencies are high-risk assets and speculative investments with limited historical data available, all factors which call for caution in drawing far-reaching conclusions. Nonetheless, the promising results of this study, warrants further research into the risk and return characteristics of not only Bitcoin but a larger set of cryptocurrencies.},
  author       = {Henningsson, Mortimer},
  keyword      = {cryptocurrencies,Bitcoin,asset selection,diversification,portfolio strategy},
  language     = {eng},
  note         = {Student Paper},
  title        = {Can cryptocurrencies enhance portfolio performance?},
  year         = {2019},
}