DIVERSIFICATION, INTEGRATION AND
CRYPTOCURRENCY MARKET
Sofia Anyfantaki
Athens University of Economics and Business & Bank of Greece_
Stelios Arvanitis
Athens University of Economics and Business
Nikolas Topaloglou
Athens University of Economics and Business
Abstract
We investigate the degree to which cryptocurrencies provide diversification benefits to an investor. We use a stochastic spanning methodology to construct optimal portfolios with and without cryptocurrencies, evaluating their comparative performance both in- and out-of-sample. Empirical analysis seems to indicate that the expanded investment universe with cryptocurrencies dominates the traditional one with stocks, bonds and cash, yielding potential diversification benefits and providing better investment opportunities for some risk averse investors. We further explain our results by documenting that cryptocurrency markets are segmented from the equity and bond markets.
JEL classification codes: C12, C14, D81, G11.
Keywords: Cryptocurrencies, Portfolio choice, Second Order Stochastic dominance, Stochastic Spanning, Diversification, Market Integration, Market Segmentation.
Acknowledgements: The views expressed in this article are those of the authors and not necessarily reflect those of the Bank of Greece or the Eurosystem.
Correspondence:
Sofia Anyfantaki
Economic Analysis & Research Department,
Bank of Greece,
21, El. Venizelos Ave, 10250,
Athens, Greece
e-mail: sanyfantaki@bankofgreece.gr.