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Can Bitcoin Replace Gold in an Investment Portfolio?

Schulich School of Business, York University, Toronto, ON M3J 1P3, Canada
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J. Risk Financial Manag. 2018, 11(3), 48; https://doi.org/10.3390/jrfm11030048
Received: 2 July 2018 / Revised: 8 August 2018 / Accepted: 13 August 2018 / Published: 14 August 2018
(This article belongs to the Special Issue Alternative Assets and Cryptocurrencies)
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. View Full-Text
Keywords: Bitcoin; gold; GARCH; portfolio modelling; risk management Bitcoin; gold; GARCH; portfolio modelling; risk management
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MDPI and ACS Style

Henriques, I.; Sadorsky, P. Can Bitcoin Replace Gold in an Investment Portfolio? J. Risk Financial Manag. 2018, 11, 48. https://doi.org/10.3390/jrfm11030048

AMA Style

Henriques I, Sadorsky P. Can Bitcoin Replace Gold in an Investment Portfolio? Journal of Risk and Financial Management. 2018; 11(3):48. https://doi.org/10.3390/jrfm11030048

Chicago/Turabian Style

Henriques, Irene; Sadorsky, Perry. 2018. "Can Bitcoin Replace Gold in an Investment Portfolio?" J. Risk Financial Manag. 11, no. 3: 48. https://doi.org/10.3390/jrfm11030048

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