Diversifying investor's portfolio using bitcoin: An econometric analysis

Title

Diversifying investor's portfolio using bitcoin: An econometric analysis

Creator

Subramanian A.; Rao B.M.

Description

Rational investors look into maximizing returns with minimal risk. Since this is highly unlikely, optimizing risk and return is a practical solution. Bitcoin is a new financial product that can be included in an investment portfolio. This paper looks at Bitcoins as a separate asset class and attempts to capture the volatility using the Exponential GARCH (E-GARCH) as well as to check if Bitcoins can be used as an optimal tool to hedge using the Dynamic Conditional Correlation GARCH against four traditional asset classes in the U.S. economy which includes the stock market (S&P 500 index), Bonds (U.S. Aggregate Bond Index), Gold and Crude Oil. The period of study is a little over 7 years. The results suggest that Bitcoin stands as a highly speculative class of asset with extremely high volatility and with respect to hedging, Bitcoin stands as a possible tool of hedge with the U.S. Aggregate Bond index and to a certain extent against Gold but fails to be an optimal hedge against the S&P 500 and Crude Oil in the U.S. economy between April 29, 2013 and October 31, 2019 due to its highly volatile nature. 2020 John Wiley & Sons, Ltd.

Source

Journal of Public Affairs, Vol-22, No. 3

Date

2022-01-01

Publisher

John Wiley and Sons Ltd

Coverage

Subramanian A., Department of Economics, Bannerghatta Road Campus, CHRIST (Deemed to be University), Bengaluru, India; Rao B.M., Department of Economics, Bannerghatta Road Campus, CHRIST (Deemed to be University), Bengaluru, India

Rights

Restricted Access

Relation

ISSN: 14723891

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.1002/pa.2527

https://www.scopus.com/inward/record.uri?eid=2-s2.0-85092756656&doi=10.1002%2fpa.2527&partnerID=40&md5=f242b7c8c5952bb181d340f6c56c1cc6