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Bitcoin as an enhancer of performance in an All Weather inspired portfolio

Ottosson, Kim LU (2021) NEKH02 20211
Department of Economics
Abstract
The thesis employs a number of tools originating from the field of Modern Portfolio Theory to assess the appropriate weight of Bitcoin in addition to several assets commonly found in the All-Weather Portfolio. Utilizing Sharpe Ratio optimization, the thesis compares two main portfolios to determine if the inclusion of Bitcoin can improve the performance and risk-return ratio of an optimized All Weather Portfolio. A short introduction to the asset class is provided in combination with a basic explanation of the methodology of portfolio optimization and the origin of the All Weather portfolio. The results of the optimization suggest that a portfolio weight of approximately 1% in an optimized All Weather inspired portfolio results in a higher... (More)
The thesis employs a number of tools originating from the field of Modern Portfolio Theory to assess the appropriate weight of Bitcoin in addition to several assets commonly found in the All-Weather Portfolio. Utilizing Sharpe Ratio optimization, the thesis compares two main portfolios to determine if the inclusion of Bitcoin can improve the performance and risk-return ratio of an optimized All Weather Portfolio. A short introduction to the asset class is provided in combination with a basic explanation of the methodology of portfolio optimization and the origin of the All Weather portfolio. The results of the optimization suggest that a portfolio weight of approximately 1% in an optimized All Weather inspired portfolio results in a higher Sharpe Ratio and a higher expected annual return in comparison with a traditional All Weather inspired portfolio. Besides the increased Sharpe Ratio, both the Treynor Measure and Jensen’s Alpha were affected positively by the inclusion of Bitcoin. All the portfolios including Bitcoin exhibited better performance than their traditional predecessors. The thesis then moves on to conclude that due to the rejected normal distribution of Bitcoin and utilization of the Sharpe Ratio, the results should be interpreted with some scepticism. (Less)
Please use this url to cite or link to this publication:
author
Ottosson, Kim LU
supervisor
organization
course
NEKH02 20211
year
type
M2 - Bachelor Degree
subject
keywords
Sharpe Ratio, Modern Portfolio Theory, Bitcoin, Treynor Measure, Optimization
language
English
id
9049828
date added to LUP
2021-07-05 13:35:57
date last changed
2021-07-05 13:35:57
@misc{9049828,
  abstract     = {{The thesis employs a number of tools originating from the field of Modern Portfolio Theory to assess the appropriate weight of Bitcoin in addition to several assets commonly found in the All-Weather Portfolio. Utilizing Sharpe Ratio optimization, the thesis compares two main portfolios to determine if the inclusion of Bitcoin can improve the performance and risk-return ratio of an optimized All Weather Portfolio. A short introduction to the asset class is provided in combination with a basic explanation of the methodology of portfolio optimization and the origin of the All Weather portfolio. The results of the optimization suggest that a portfolio weight of approximately 1% in an optimized All Weather inspired portfolio results in a higher Sharpe Ratio and a higher expected annual return in comparison with a traditional All Weather inspired portfolio. Besides the increased Sharpe Ratio, both the Treynor Measure and Jensen’s Alpha were affected positively by the inclusion of Bitcoin. All the portfolios including Bitcoin exhibited better performance than their traditional predecessors. The thesis then moves on to conclude that due to the rejected normal distribution of Bitcoin and utilization of the Sharpe Ratio, the results should be interpreted with some scepticism.}},
  author       = {{Ottosson, Kim}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Bitcoin as an enhancer of performance in an All Weather inspired portfolio}},
  year         = {{2021}},
}