Economics Working Papers
 

Document Type

Working Paper

Publication Date

1-2014

Abstract

The bitcoin phenomenon, and the technological innovation that made it possible, is interesting - but for investors large and small, the more pertinent question is whether they should buy the digital currency or avoid it. We analyze a bitcoin investment from the standpoint of an investor with a diversified portfolio using both in-sample and out-of-sample settings. Within the in-sample setting, bitcoin does not yield added value to investors with utility function consistent with the mean-variance setting. On the other hand, they do offer diversification benefits to investors with negative exponential and power utility functions. However, these benefits are not preserved in the out-of-sample framework. In most cases, the optimal portfolios that include only the traditional asset classes appear to have superior performance.

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This paper has been updated. The original version may be downloaded under Additional Files

chowdhury_2014-01_original.pdf (1164 kB)
Is Bitcoin the 'Paris Hilton' of the Currency World? [Original version]

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