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Title: 2013-09-12: Virtual Currency, Tangible Return: Portfolio Diversification Post by: n8rwJeTt8TrrLKPa55eU on September 27, 2013, 10:51:42 AM Sorry if dup, but I don't recall seeing this posted. It's quite an important paper, timely given the SecondMarket news, and confirms something many here have known intuitively: that Bitcoins are a new low-correlation asset class that can benefit all investment portfolios.
Quote 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). Bitcoin investment has highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets is remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins, say 3%, may dramatically improve the risk-return trade-off of well-diversified portfolios. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324780 |