Should well-diversified portfolios contain cryptocurrencies? A quantitative analysis based on portfolio performance measures

Abstract

In this thesis we study whether cryptocurrencies should be included in a well-diversified portfolio or not. Moreover, we try to determine if the capital asset pricing model holds for cryptocurrencies, like other investments assets. We conclude that cryptocurrencies should be a part of a well-diversified portfolio. We make this conclusion based on the results from a selection of the most used financial performance metrics. We also conclude that the capital asset pricing model holds for cryptocurrencies. The data period we have looked at spans from 2010 and to the end of 2017, which is a relatively short time period and therefore a limitation in this study. Our results show that cryptocurrencies have been an excellent investment opportunity in the time period of our research. Outperforming the traditional assets, cryptocurrencies provides a better return considering the risk, either the systematic, unsystematic or whole risk.