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Should investors include bitcoin in their portfolio? New evidence from a bootstrap-based stochastic dominance approach

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  • Mourad Mroua
  • Slah Bahloul
  • Nader Naifar

Abstract

This paper investigates the potential portfolio diversification benefits by introducing the Bitcoin to the traditional diversified financial portfolio. Using a bootstrap-based stochastic dominance (SD) test and daily prices of the commodity and stock market indices, we find that the introduction of Bitcoin improves the performance of the traditional financial portfolio and the optimal portfolio choice changes according to the market regime. Principally, results show that the optimal portfolio diversification combining Bitcoin, US stock market and commodities indices can be a good hedge, offering risk-averse, more performing portfolio investments during any financial crisis.

Suggested Citation

  • Mourad Mroua & Slah Bahloul & Nader Naifar, 2022. "Should investors include bitcoin in their portfolio? New evidence from a bootstrap-based stochastic dominance approach," Applied Economics Letters, Taylor & Francis Journals, vol. 29(1), pages 53-62, January.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:1:p:53-62
    DOI: 10.1080/13504851.2020.1855302
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    Cited by:

    1. Muhammad Usman, 2023. "A stochastic dominance analysis of conventional and clean energy stocks during different oil market conditions," Empirical Economics, Springer, vol. 65(2), pages 875-897, August.
    2. Kedžo Margareta Gardijan, 2022. "COVID-19 pandemic impact on investment prospective in selected CEE stock markets: A stochastic dominance approach," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 8(2), pages 28-42, December.
    3. Elsayed, Ahmed H. & Naifar, Nader & Nasreen, Samia & Tiwari, Aviral Kumar, 2022. "Dependence structure and dynamic connectedness between green bonds and financial markets: Fresh insights from time-frequency analysis before and during COVID-19 pandemic," Energy Economics, Elsevier, vol. 107(C).
    4. Gorman, Michael & Hughen, W. Keener, 2024. "Does bitcoin still enhance an investment portfolio in a post Covid-19 world?," Finance Research Letters, Elsevier, vol. 62(PB).
    5. Kim, Jang Ho, 2022. "Analyzing diversification benefits of cryptocurrencies through backfill simulation," Finance Research Letters, Elsevier, vol. 50(C).
    6. Rubaiyat Ahsan Bhuiyan & Afzol Husain & Changyong Zhang, 2023. "Diversification evidence of bitcoin and gold from wavelet analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-36, December.
    7. Ali, Fahad & Bouri, Elie & Naifar, Nader & Shahzad, Syed Jawad Hussain & AlAhmad, Mohammad, 2022. "An examination of whether gold-backed Islamic cryptocurrencies are safe havens for international Islamic equity markets," Research in International Business and Finance, Elsevier, vol. 63(C).

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