Authors: Stavros Stavroyiannis
Addresses: Department of Accounting and Finance, School of Management and Economics, Technological Educational Institute of Peloponnese, Greece
Abstract: The overall performance of a portfolio is the utmost measure of success for the skills of the portfolio manager. The Sharpe ratio and the modified Sharpe ratio have been some of the most referenced standards used in finance, to evaluate the efficiency of funds and hedge fund managers, however; such an ordering should be accompanied by proper statistical inference. In this work we examine whether Bitcoin can diversify significantly a reference portfolio composed from the five best performers of the Dow Jones industrial average in 2017 that is, Apple, Boeing, Caterpillar, Visa, and Walmart. The portfolios are constructed via analytical solutions in the mean-variance framework, constrained optimisation for the cases of long-only and risk-parity portfolios, and an equal weight strategy. The statistical significance of the Sharpe and modified Sharpe ratio differences is examined via a variety of tests. The results indicate that Bitcoin can significantly improve only the Sharpe and modified Sharpe ratios of the minimum variance and risk-parity portfolios. On the efficient frontier, the tangent portfolios are dominated by the traditional stocks.
Keywords: Bitcoin; portfolio optimisation; Sharpe ratio; modified Sharpe ratio; statistical significance.
International Journal of Economics and Business Research, 2019 Vol.18 No.4, pp.399 - 411
Received: 09 Aug 2018
Accepted: 27 Sep 2018
Published online: 03 Oct 2019 *