Should Investors Include Bitcoin in Their Portfolios? A Portfolio Theory Approach

Emmanouil Platanakis, Andrew Urquhart

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Many papers in recent years have examined the benefits of adding alternative assets to traditional portfolios containing stocks and bonds. Bitcoin has emerged as a new alternative investment for investors which has attracted much attention from the media and investors alike. However relatively little is known about the investment benefits of Bitcoin and therefore this paper examines the benefit of including Bitcoin in a traditional benchmark portfolio of stocks and bonds. Specially, we employ data up to June 2018 and analyse the potential out-of-sample portfolio benefits resulting from including Bitcoin in a stock-bond portfolio for a range of eight popular asset allocation strategies. The out-of-sample analysis shows that, across all different asset allocation strategies and risk aversions, the benefits of Bitcoin are quite considerable with substantially higher risk-adjusted returns. Our results are robust to rolling estimation windows, the incorporation of transaction costs, the inclusion of a commodity portfolio, alternative indices, short-selling as well as two additional optimization techniques including higher moments with (and without) variance-based constraints (VBCs). Therefore, our results suggest that investors should include Bitcoin in their portfolio as it generates substantial higher risk-adjusted
Original languageEnglish
Article number100837
Pages (from-to)1-42
Number of pages42
JournalBritish Accounting Review
Issue number4
Early online date19 Jul 2019
Publication statusPublished - 31 Jul 2020


  • Bitcoin
  • Diversification
  • FinTech
  • Out-of-sample performance
  • Portfolio optimization

ASJC Scopus subject areas

  • Accounting


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