Diversification in financial and crypto markets |
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| Affiliation: | 1. University of Manouba-Tunis Higher School of Commerce, Tunisia;2. Audencia Business School, France;3. Paris School of Business, Paris, France;4. Faculty of Economics and Management of Tunis, Tunisia;1. Université de Montréal, Canada;2. HEC Montréal, Canada;1. Faculty of Business Administration, Osaka University of Economics, 2-2-8, Osumi, Higashiyodogawa-ku, Osaka 533-8533, Japan;2. Department of Finance, Musashi University, 1–26–1, Toyotamakami, Nerima-ku, Tokyo 176–8534, Japan;3. Financial Research Department, NLI Research Institute, 4-1-7, Kudankita, Chiyoda-ku, Tokyo 103-0072, Japan |
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| Abstract: | This article investigates the conditional value at risk (CVaR) of two portfolio optimiza- tion approaches containing assets from the financial and crypto markets. We first catch the conditional interdependence structure among each variable through the vine-copula-GARCH model before merging it with the Mean-CVaR model. We then optimize each portfolio and find out the optimal allocation while evaluating the precise risk. The results indicate that the D-Vine copula is more suitable for both portfolios and that, when different conditional stock indices information are being taken into consideration, the crypto-market components can act as a weak hedge/safe haven against financial market indices. Furthermore, as CVaR is found to outperform the mean-variance of Markowitz in both portfolios, both risk measures similarly show that when including cryptocurrencies in a portfolio, the S&P 500 shall not be included. Additionally, the inclusion of Ethereum in a portfolio already containing Bitcoin does not boost the return. |
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