Investing with Cryptocurrencies—a Liquidity Constrained Investment Approach*

Journal of Financial Econometrics - Tập 18 Số 2 - Trang 280-306 - 2020
Simon Trimborn1, Mingyang Li2, Wolfgang Karl Härdle3
1National University of Singapore and Humboldt-Universität zu Berlin
2[Xiamen University]
3Humboldt-UniversitÄt zu Berlin

Tóm tắt

AbstractCryptocurrencies have left the dark side of the finance universe and become an object of study for asset and portfolio management. Since they have low liquidity compared to traditional assets, one needs to take into account liquidity issues when adding them to a portfolio. We propose a Liquidity Bounded Risk-return Optimization (LIBRO) approach, which is a combination of risk-return portfolio optimization under liquidity constraints. Cryptocurrencies are included in portfolios formed with stocks of the S&P 100, US Bonds, and commodities. We illustrate the importance of the liquidity constraints in an in-sample and out-of-sample study. LIBRO improves the weight optimization in the sense that it only adds cryptocurrencies in tradable amounts depending on the intended investment amount. The returns greatly increase compared to portfolios consisting only of traditional assets. We show that including cryptocurrencies in a portfolio can indeed improve its risk–return trade-off.

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Thông tin xuất bản

Journal of Financial Econometrics

Tập 18 Số 2

280-306

Thông tin tác giả