| Abstract [eng] |
The aim of this thesis is to evaluate the impact of cryptocurrencies on investment portfolio returns. Though most empirical studies of cryptocurrencies as investments are based on assessing whether they can assist in hedging the portfolio, the findings for market integration between cryptocurrencies and traditional investments are indecisive and they often consider only one cryptocurrency Bitcoin. This research includes 6 large capitalisation cryptocurrencies. In the empirical research, 8 portfolios are formed: two portfolios include only traditional assets and then six token portfolios are formed, where each portfolio has four traditional investments and 1 cryptocurrency. 4 statistical methods ar employed to obtain optimal asset weights: Equal Weights, Global Minimum Variance, Constrained Global Minimum Variance and Dynamic Conditional Correlation GARCH. Using the portfolio weights obtained by the models outlined, portfolio returns shall be calculated and compared. To compare the models, portfolio measures are then analysed, providing an insight to most optimal choice. Research finds that the most optimal results regarding standard deviation and Sharpe ratios are obtained in Traditional asset portfolios. They outperform cryptocurrency portfolios by far, demonstrating an optimal choice between risk and returns. However, portfolio Betas are lower in some of the cryptocurrency portfolios, which support a diversification argument. In terms of cryptocurrency portfolios, they have provided significantly greater returns both in long-term investing and daily returns, however, due to heavy volatility and risk, their portfolio measures are not optimal if assessed against traditional asset portfolios. The preferred choice of cryptocurrencies to add in an investment portfolio for diversification are Bitcoin and Ethereum. Both tokens provide large returns, relatively low portfolio standard deviation and high Sharpe ratios. |
