Could Bitcoin enhance the portfolio performance?

Abstract

© Published under licence by IOP Publishing Ltd. This study analyses the effect of adding bitcoin into the portfolio by exploiting the Long Only investment strategy. The Portfolio consists of five assets: bitcoin, crude oil price index, stock exchange of Thailand (SET) price index, the exchange rate between Thai and USD and Thai government bond compound with treasurer bill. The model used for modelling the return of all asset is Multivariate t-copula based on GARCH and also measure the risk of the portfolio using the Value-at-risk (VaR) under the condition of minimizing the variance of return. We find that when adding more bitcoin into the portfolio, the return and risk of asset increased. If we only invest in bitcoin, we will face the risk at 16.90% and gain 6.27%. When comparing the effectiveness of portfolio by using Return-risk ratio, it found that portfolio with bitcoin shows the higher return rate than portfolios without bitcoin. Therefore, it can conclude that bitcoin could indeed increase the effectiveness of portfolio.