The efficiency of cryptocurrency in portfolio diversification: evidence from the Covid-19 pandemic

Boodhun, Heshina (2022) The efficiency of cryptocurrency in portfolio diversification: evidence from the Covid-19 pandemic. [Dissertation (University of Nottingham only)]

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The aim of this study is to evaluate the efficiency of integrating cryptocurrencies in a diversified equity portfolio. Two main hypotheses were tested. The first one investigates the co-movements between equity indices values and cryptocurrencies values to evaluate the latter’s diversification benefits. In view that literatures have concluded that economic downturns increase the correlation among assets, the second hypothesis of this paper evaluates portfolio diversification following the different market phases, by closely considering the COVID-19 pandemic.

A sample of 14 cryptocurrencies and 7 stock market indices were evaluated from 3rd January 2019 to 10th August 2021. The main finding of this study is that out of the 14 cryptocurrencies, only two manifested the features of being diversifiers, while the remaining had a high correlation with their respective indices. Nonetheless, all cryptocurrencies, including the diversifiers, had a high correlation with the stock market indices during the longest bear market period, which occurred during the announcement of COVID-19 as a pandemic. These evidences are important tools for investors, hedgers and fund managers who are seeking to diversify their portfolios using cryptocurrencies.

Item Type: Dissertation (University of Nottingham only)
Keywords: diversification, cryptocurrency, Covid-19, stock market indices, correlation
Depositing User: Boodhun, Heshina
Date Deposited: 28 Feb 2022 03:05
Last Modified: 28 Feb 2022 03:05

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