The impact of cryptocurrencies on the performance of multi-asset portfolios: Evidence from Brazil

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Published: Dec 24, 2021
DOI: https://doi.org/10.12660/rbfin.v19n4.2021.84354
Keywords:
Asset allocation models Portfolio optimization Bitcoin Diversification benefits

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Oswaldo Donatelli Neto
Banco Itaú
Jéfferson Augusto Colombo
The COPPEAD Graduate School of Business (UFRJ)

Abstract

This paper assesses the impact of adding cryptocurrencies to well-diversified portfolios, from a Brazilian investor's perspective. Based on otherwise-identical portfolios composed of equities (IBOV), fixed income (IMAG), real estate (IFIX), commodities (GOLD), and foreign equity (IVVB11), we evaluate the changes in risk-adjusted returns from including cryptocurrencies under eight allocation strategies, both in- and out-of-sample. Results indicate that including cryptoassets increases the Sharpe, Sortino, and Omega indices for all analyzed strategies. Among the diversification categories, “Cripto Basket” and “Altcoins”outperformed “Bitcoin” (on average), indicating potential benefits from diversified crypto investment. The results are robust to different estimation windows and rebalancing frequencies.

Article Details

Issue
Vol. 19 No. 4 (2021): October-December
Section
Long Paper
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Author Biography

Jéfferson Augusto Colombo, The COPPEAD Graduate School of Business (UFRJ)

Professor of Finance at the COPPEAD Graduate School of Business (UFRJ).