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Bitcoin as a financial asset : impact of Bitcoin on a well-diversified European portfolio

Mertens de Wilmars, Amaury ; Vondeling, Ward
(2018)

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MertensdeWilmars_37971600Vondeling_44661600_2018.pdf
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Details

Supervisors
Iania, Leonardo
Faculty
Louvain School of Management
Louvain School of Management
Degree label
Master [120] en sciences de gestion
Master [120] en Ingénieur de gestion
Abstract
The purpose of this paper is to analyse Bitcoin as a financial asset and more precisely to analyse the impact of Bitcoin on a well-diversified European portfolio with data covering the time span 2014 to 2017. Markowitz’s Modern Portfolio theory is used to compare the risk-return of optimal portfolios including and excluding Bitcoin, from the point of view of a European investor. Bitcoin is added to three portfolios: an equally weighted portfolio, a long-selling-only portfolio and a portfolio that allows short-selling. The main results are that the risk-return of an equally weighted portfolio improves when adding Bitcoin and that adding approximately 2% of Bitcoin to a well-diversified European portfolio increases the Sharpe ratio dramatically in both the short-selling and long-selling portfolio. Our results will have an impact on how to invest using Bitcoin as well as how Bitcoin can be perceived by regulatory institutions.