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Optimum investor portfolio allocation in new age digital assets

Vaibhav Aggarwal (Department of Finance, Apeejay School of Management, New Delhi, India)

International Journal of Innovation Science

ISSN: 1757-2223

Article publication date: 4 March 2021

Abstract

Purpose

Bitcoin and Ethereum, although the most prominent cryptocurrencies, carry a high ticker price. Many investors carry an inherent bias against high price ticker securities and prefer only low prices securities. This paper aims to help market players generate adequate risk-adjusted returns by investing in only lower-priced cryptocurrencies.

Design/methodology/approach

The pairwise bivariate BEKK-GARCH (1,1) model is deployed to capture the short- and long-term volatility linkages between Litecoin, Stellar and Ripple from August 2015 to June 2020.

Findings

Litecoin is the most influential volatility sender in the basket of these three cryptocurrencies. The portfolio weights indicate that investors can create an optimized two asset portfolio with the lowest exposure to Stellar with Litecoin and Ripple. Market players with a long position in Ripple can have the cheapest hedge by shorting Stellar.

Originality/value

This study adds to the scant literature on the association between emerging cryptocurrencies and finding optimum portfolio weight and hedge ratios.

Keywords

Citation

Aggarwal, V. (2021), "Optimum investor portfolio allocation in new age digital assets", International Journal of Innovation Science, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJIS-10-2020-0237

Publisher

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Emerald Publishing Limited

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