Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 1 of 1
Full-Text Articles in Business
Investing With Cryptocurrencies: A Liquidity Constrained Investment Approach, Simon Trimborn, Mingyang Li, Wolfgang Karl Hardle
Investing With Cryptocurrencies: A Liquidity Constrained Investment Approach, Simon Trimborn, Mingyang Li, Wolfgang Karl Hardle
Sim Kee Boon Institute for Financial Economics
Cryptocurrencies have left the dark side of the finance universe and become an object of study for asset and portfolio management. Since they have low liquidity compared to traditional assets, one needs to take into account liquidity issues when adding them to a portfolio. We propose a Liquidity Bounded Risk-return Optimization (LIBRO) approach, which is a combination of risk-return portfolio optimization under liquidity constraints. Cryptocurrencies are included in portfolios formed with stocks of the S&P 100, US Bonds, and commodities. We illustrate the importance of the liquidity constraints in an in-sample and out-of-sample study. LIBRO improves the weight optimization in …