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Does Bitcoin Add Any Value To The Investment Portfolios In Emerging Markets? A Case From Tehran Stock Exchange

Author

Listed:
  • Hossein Dastkhan

    (Department of Financial Engineering, Faculty of Financial Science, Kharazmi University, Tehran, Iran)

  • Hossein Saber

    (Department of Financial Engineering, Faculty of Financial Science, Kharazmi University, Tehran, Iran)

Abstract

In this study, we investigate how adding Bitcoin can influence the investment portfolios. For this purpose, we consider a portfolio including Bitcoin and the five major sector indices of the Tehran Stock Exchange (TSE). At first, the asset returns are predicted through an estimation model based on higher moments. In the second step, the properties of Bitcoin in the face of other assets in a portfolio are studied by the asymmetric dynamic conditional correlation (ADCC) model. Then, the optimal weights in the portfolios are estimated. Accordingly, we used four portfolio optimization models with different objective functions, including a hybrid function of the higher moments, predicted risk from the ADCC model, and maximizing Sharpe and Sortino ratios. The out-of-sample results showed the relative efficiency of the proposed model in predicting the asset returns in Tehran Stock Exchange. In addition, the results of the ADCC model showed that Bitcoin plays a risk-hedging role for the pharmaceutical and banking sectors in TSE. We also know Bitcoin as a safe haven for the banking, petrochemical, metals, automobile, and pharmaceutical sectors. The results of portfolio selection also prove the effectiveness of adding Bitcoin with a maximum weight of 10% in the investment portfolios.

Suggested Citation

  • Hossein Dastkhan & Hossein Saber, 2024. "Does Bitcoin Add Any Value To The Investment Portfolios In Emerging Markets? A Case From Tehran Stock Exchange," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-23, September.
    • Handle: RePEc:wsi:afexxx:v:19:y:2024:i:03:n:s201049522450012x
    DOI: 10.1142/S201049522450012X
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    More about this item

    Keywords

    Finance; portfolio optimization; Bitcoin; diversification; safe haven; hedging;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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