Investing with cryptocurrencies – evaluating their potential for portfolio allocation strategies

Petukhina, Alla; Trimborn, Simon; Härdle, Wolfgang Karl; Elendner, Hermann

doi:10.1080/14697688.2021.1880023

Cited by 63 publications

(23 citation statements)

References 101 publications

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“…Conspicuously, investment decisions are a function of observable market characteristics, such as prices, volumes, and market capitalizations, rather than fundamental values such as accounting or economic data. Despite prominent volatility, their high average returns and low correlations have established cryptocurrencies as alternative investment assets for portfolio and risk management (Petukhina et al 2021). Corbet et al (2018) concluded that investors seeking to benefit from short-term diversification should consider the cryptocurrencies' risk and return behavior with other financial assets.…”

Section: Literature Reviewmentioning

confidence: 99%

Does Cryptocurrency Hurt African Firms?

Sami

Abdallah

2022

Risks

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This paper aimed to assess the effect of the cryptocurrency market on firms’ market value, especially on the sectoral level, in Africa. To reach the study’s main goal, the authors adopted the Panel-Corrected Standard Errors (PCSEs) and Panel Double-Clustered Standard Errors (PDCSEs). Using firm-level data, the results of this study can be summarized as follows: (a) The cryptocurrency market hurts the firm market value in Africa. (b) The firms operating across different sectors respond disproportionally to the cryptocurrency market. For instance, the sectors that offer low returns in Africa (industrial, energy, financial) negatively respond to the cryptocurrency market, while the sectors that offer high returns (real estate and information technology) are not significantly affected. (c) The cryptocurrency market has a perverse effect on less experienced and highly indebted firms. (d) The consistent policies of governments to ban cryptocurrency do not work efficiently.

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Section: Literature Reviewmentioning

confidence: 99%

Does Cryptocurrency Hurt African Firms?

Sami

Abdallah

2022

Risks

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“…To outline the dissonance between the mass of whitepapers/prosaic outlets in contrast to the actual data available for SCs, we conduct a data-driven literature overview gathering a rather diffuse impression. Researchers, for example, focus on a variety of aspects, among others, ranging from applications of SCs in healthcare and quality monitoring [Celesti et al, 2020, Khatoon, 2020, Yu et al, 2020, technical implementations and vulnerabilities [Ajienka et al, 2020, Pierro et al, 2020 to games [Scholten et al, 2019].…”

Section: Recent Research Reviewmentioning

confidence: 99%

Understanding Smart Contracts: Hype or Hope?

Zinovyeva¹,

Reule²,

Härdle³

2021

Preprint

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Smart Contracts are commonly considered to be an important component or even a key to many business solutions in an immense variety of sectors and promises to securely increase their individual efficiency in an ever more digitized environment.Introduced in the early 1990's, the technology has gained a lot of attention with its application to blockchain technology to an extent, that can be considered a veritable hype. Reflecting the growing institutional interest, this intertwined exploratory study between statistics, information technology, and law contrasts these idealistic stories with the data reality and provides a mandatory step of understanding the matter, before any further relevant applications are discussed as being "factually" able to replace traditional constructions. Besides fundamental flaws and application difficulties of currently employed Smart Contracts, the technological drive and enthusiasm backing it may however serve as a jump-off board for future developments thrusting well in the presently unshakeable traditional structures.

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“…The theory of the Markowitz portfolio [43][44][45] does not lose relevance for the cryptocurrency market. However, significant volatility of the cryptocurrency market during long periods of time limits the usage of Markowitz's theory of forming the optimal portfolio based on the historical data sets of the cryptocurrency rate.…”

Section: Introductionmentioning

confidence: 99%

“…However, research related to the problem of investment risks hedging, taking into account the current situation in the cryptocurrency market, has become more demanding. The problem of forming an optimal portfolio takes on a new significance [44][45][46][47][48].…”

Section: Introductionmentioning

confidence: 99%

“…The problem of efficient management of the investment strategies portfolio arises at this stage. Considerably high requirements concerning the possibilities of constant improvement, riskiness, and profitability to the formation of such portfolios designed for cryptocurrency trading are imposed [43][44][45][46][47][48][49][50][51][52][53][54][55][56][57]. Taking into account that high-frequency trading (HFT) [58] trading systems become the most common variant of algorithmic trading in the cryptocurrency market, there are specific risks which should be taken into account when forming portfolios of trading strategies.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The Features of Building a Portfolio of Trading Strategies Using the SAS OPTMODEL Procedure

et al. 2021

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The article describes the original information technology of the algorithmic trading, designed to solve the problem of forming the optimal portfolio of trade strategies. The methodology of robust optimization, using the Ledoit–Wolf shrinkage method for obtaining stable estimates of the covariance matrix of algorithmic strategies, was used for the formation of a portfolio of trade strategies. The corresponding software was implemented by SAS OPTMODEL Procedure. The paper deals with a portfolio of trade strategies built for highly-profitable, but also highly risky financial tools—cryptocurrencies. Available bitcoin assets were divided into a corresponding proportion for each of the recommended portfolio strategies, and during the selected period (one calendar month) were used for this research. The portfolio of trade strategies is rebuilt at the end of the period (every month) based on the results of trade during the period, in accordance with the conditions of risk minimizing or income maximizing. Trading strategies work in parallel, being in a state of waiting for a relevant trading signal. Strategies can be changed by moving the parameters in accordance with the current state of the financial market, removed if ineffective, and replaced where necessary. The efficiency of using a robust decision-making method in the context of uncertainty regarding cryptocurrency trading was confirmed by the results of real trading for the Bitcoin/Dollar pair. Implementation of the offered information technology in electronic trading systems will allow risk reduction as a result of making incorrect decisions or delays in making decisions in a systemic trading.

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Investing with cryptocurrencies – evaluating their potential for portfolio allocation strategies

Cited by 63 publications

References 101 publications

Does Cryptocurrency Hurt African Firms?

Does Cryptocurrency Hurt African Firms?

Understanding Smart Contracts: Hype or Hope?

The Features of Building a Portfolio of Trading Strategies Using the SAS OPTMODEL Procedure

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