Economics Working Papers

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Working Paper

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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.


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]