Bitcoin is a major virtual currency. Using weekly data over the [2010][2011][2012][2013] period, we analyze a Bitcoin investment from the standpoint of a U.S. investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, Bitcoin investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior which may not last in the medium or long run. Results should however be taken with caution as the data may reflect early-stage behavior which may not last in the medium or long run.3
Bitcoin is a major virtual currency. Using weekly data over the 2010-2013 period, we analyze a Bitcoin investment from the standpoint of a U.S. investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, Bitcoin investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior which may not last in the medium or long run.
In this article, tests for globalization and contagion are separated using an ex ante definition of crises, and contagion tests are neutralized with respect to globalization effects. A large database is constructed to study the stability of correlation matrices for four asset classes: equities, government bonds, investment-grade corporate bonds, and high-yield corporate bonds, in four geographical zones. Overall, the results confirm the instability of correlations and point to a combination of globalization and flight to quality, while emphasizing that contagion on the equity markets appears as an artifact due to globalization. AbstractIn this article, tests for globalization and contagion are separated using an ex ante definition of crises, and contagion tests are neutralized with respect to globalization effects. A large database is constructed to study the stability of correlation matrices for four asset classes: equities, government bonds, investment-grade corporate bonds, and high-yield corporate bonds, in four geographical zones. Overall, the results confirm the instability of correlations and point to a combination of globalization and flight to quality, while emphasizing that contagion on the equity markets appears as an artifact due to globalization.
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