Can bitcoin replace gold in an investment portfolio?

Irene Henriques and Perry Sadorsky

Bitcoin is an exciting new financial product that may be useful for inclusion in investment portfolios. This paper investigates the implications of replacing gold in an investment portfolio with bitcoin (“digital gold”). Our approach is to use several different multivariate GARCH models (dynamic conditional correlation (DCC), asymmetric DCC (ADCC), generalized orthogonal GARCH (GO-GARCH)) to estimate minimum variance equity portfolios. Both long and short portfolios are considered. An analysis of the economic value shows that risk-averse investors will be willing to pay a high performance fee to switch from a portfolio with gold to a portfolio with bitcoin. These results are robust to the inclusion of trading costs.

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Year of publication:	September 2018
Authors:	Henriques, Irene ; Sadorsky, Perry A.
Published in:	Journal of risk and financial management : JRFM. - Basel : MDPI, ISSN 1911-8074, ZDB-ID 2739117-6. - Vol. 11.2018, 3, p. 1-19
Subject:	Bitcoin \| gold \| GARCH \| portfolio modelling \| risk management \| Risikomanagement \| Risk management \| Portfolio-Management \| Portfolio selection \| Gold \| Elektronisches Geld \| Electronic money \| Risikomaß \| Risk measure \| ARCH-Modell \| ARCH model

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Type of publication:	Article
Type of publication (narrower categories):	Aufsatz in Zeitschrift ; Article in journal
Language:	English
Other identifiers:	10.3390/jrfm11030048 [DOI] hdl:10419/238881 [Handle]
Classification:	G11 - Portfolio Choice ; G17 - Financial Forecasting ; G32 - Financing Policy; Capital and Ownership Structure
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011895634