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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Cryptocurrencies as diversification instrument: A practical application for portfolio optimization |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 86 |
| Date | 2021 |
| Abstract Text | This paper focuses on portfolio optimization with respect to cryptocurrencies and shows that they significantly differ from each other in their technological attributes but also value proposition. Additionally, it is illustrated that cryptocurrencies are extremely volatile assets with leptokurtic, skewed and heavy tailed return distributions. The correlation amongst different coins is extremely large, whereas the correlation strongly depends on the state of the market. Moreover, a semi-parametric bootstrapping framework for portfolio optimization with respect to the Value-at-Risk (VaR) and Expected Shortfall (ES) is introduced and compared to the classical multiperiod mean-variance optimization. The three optimizations are executed for constant and non-rebalancing portfolios that are restricted to stocks, bonds and cash exclusively and portfolios that additionally contain cryptocurrencies. Overall, the results did not clearly indicate the existence of a portfolio rebalancing bonus for the analyzed investment horizon. However, they showed that including cryptocurrencies in a portfolio can significantly increase the return to risk ratio, independent of the optimization technique. Furthermore, the mean-ES optimization delivers the best performance compared to optimizations with other risk measures. |
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