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The economic value of Bitcoin: A volatility timing perspective with portfolio rebalancing

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  • Hung, Jui-Cheng
  • Liu, Hung-Chun
  • Jimmy Yang, J.

Abstract

We investigate the economic value of adding Bitcoin, instead of Gold, to a traditional portfolio from the perspective of a volatility timing framework. Using futures data, we find that Bitcoin adds more value than Gold does to the portfolio during periods of dovish monetary policy. However, during periods of rapid rate hikes, Bitcoin destroys value while Gold offers safe haven and diversification benefits. Rebalancing strategies matter when considering adding alternative assets to a stock–bond portfolio in the presence of transaction costs. This study is timely given the macroeconomic environment of rate hikes and the downturn of cryptocurrencies.

Suggested Citation

  • Hung, Jui-Cheng & Liu, Hung-Chun & Jimmy Yang, J., 2024. "The economic value of Bitcoin: A volatility timing perspective with portfolio rebalancing," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001852
    DOI: 10.1016/j.najef.2024.102260
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    More about this item

    Keywords

    Bitcoin; Volatility timing; Portfolio rebalancing; RGARCH; Futures;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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