SFB649DP2017 014
Investing with cryptocurrencies - A liquidity constrained investment approach
Simon Trimborn
Mingyang Li
Wolfgang Karl Härdle
Abstract:
Cryptocurrencies have left the dark side of the finance universe and become an object
of study for asset and portfolio management. Since they have a low liquidity compared
to traditional assets, one needs to take into account liquidity issues when one puts them
into the same portfolio. We propose use a Liquidity Bounded Risk-return Optimization
(LIBRO) approach, which is a combination of the Markowitz framework under the liquidity
constraints. The results show that cryptocurrencies add value to a portfolio and the
optimization approach is even able to increase the return of a portfolio and lower the
volatility risk.
Keywords:
crypto-currency, CRIX, portfolio investment, asset classes, blockchain
JEL Classification:
C01, C58, G11