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Bitcoin as an alternative investment vehicle

Author

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  • KiHoon Hong

    (Hongik University)

Abstract

This paper documents time series momentum in Bitcoin returns. The paper finds persistence in returns for one to 8 weeks that partially reverses over longer horizons, consistent with sentiment theories of initial under-reaction and delayed over-reaction. The time series momentum in Bitcoin returns is similar to that of the other asset returns while the time span is much shorter. This may be due to much quicker nature and shorter term memory of Bitcoin investors. A combined portfolio of S&P500 and Bitcoin momentum strategy shows enhanced expected return, skewness, kurtosis and Value at Risk for given levels of portfolio return volatility.

Suggested Citation

  • KiHoon Hong, 0. "Bitcoin as an alternative investment vehicle," Information Technology and Management, Springer, vol. 0, pages 1-11.
    • Handle: RePEc:spr:infotm:v::y::i::d:10.1007_s10799-016-0264-6
    DOI: 10.1007/s10799-016-0264-6
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    References listed on IDEAS

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    5. Sagi, Jacob S. & Seasholes, Mark S., 2007. "Firm-specific attributes and the cross-section of momentum," Journal of Financial Economics, Elsevier, vol. 84(2), pages 389-434, May.
    6. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
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    8. Moskowitz, Tobias J. & Ooi, Yao Hua & Pedersen, Lasse Heje, 2012. "Time series momentum," Journal of Financial Economics, Elsevier, vol. 104(2), pages 228-250.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Lambrecht, Marco & Sofianos, Andis & Xu, Yilong, 2020. "Does mining fuel bubbles? An experimental study on cryptocurrency markets," Working Papers 0690, University of Heidelberg, Department of Economics.
    2. Masafumi Nakano & Akihiko Takahashi & Soichiro Takahashi, 2018. "Bitcoin Technical Trading with Articial Neural Network," CIRJE F-Series CIRJE-F-1090, CIRJE, Faculty of Economics, University of Tokyo.
    3. Janson, Nathalie & Karoubi, Bruno, 2021. "The Bitcoin: to be or not to be a Real Currency?," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 312-319.
    4. Stefano Martinazzi & Daniele Regoli & Andrea Flori, 2020. "A Tale of Two Layers: The Mutual Relationship between Bitcoin and Lightning Network," Risks, MDPI, vol. 8(4), pages 1-18, December.
    5. Masafumi Nakano & Akihiko Takahashi & Soichiro Takahashi, 2018. "Bitcoin technical trading with artificial neural network," CIRJE F-Series CIRJE-F-1078, CIRJE, Faculty of Economics, University of Tokyo.
    6. Masafumi Nakano & Akihiko Takahashi & Soichiro Takahashi, 2018. "Bitcoin technical trading with artificial neural network," CARF F-Series CARF-F-430, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    7. Flori, Andrea, 2019. "News and subjective beliefs: A Bayesian approach to Bitcoin investments," Research in International Business and Finance, Elsevier, vol. 50(C), pages 336-356.
    8. Klender Cortez & Martha del Pilar Rodríguez-García & Samuel Mongrut, 2020. "Exchange Market Liquidity Prediction with the K-Nearest Neighbor Approach: Crypto vs. Fiat Currencies," Mathematics, MDPI, vol. 9(1), pages 1-15, December.
    9. Panagiotidis, Theodore & Stengos, Thanasis & Vravosinos, Orestis, 2019. "The effects of markets, uncertainty and search intensity on bitcoin returns," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 220-242.
    10. Andrea Flori, 2019. "Cryptocurrencies In Finance: Review And Applications," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(05), pages 1-22, August.
    11. Chu, Jeffrey & Chan, Stephen & Zhang, Yuanyuan, 2020. "High frequency momentum trading with cryptocurrencies," Research in International Business and Finance, Elsevier, vol. 52(C).
    12. Melisa Ozdamar & Levent Akdeniz & Ahmet Sensoy, 2021. "Lottery-like preferences and the MAX effect in the cryptocurrency market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-27, December.
    13. Nakano, Masafumi & Takahashi, Akihiko & Takahashi, Soichiro, 2018. "Bitcoin technical trading with artificial neural network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 510(C), pages 587-609.
    14. Klarin, Anton, 2020. "The decade-long cryptocurrencies and the blockchain rollercoaster: Mapping the intellectual structure and charting future directions," Research in International Business and Finance, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Digital currency; Time series momentum; Profitability; Portfolio construction;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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