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Full-Text Articles in Finance and Financial Management
Understanding Cryptocurrencies, Wolfgang Karl Hardle, Campbell R. Harvey, Raphael C. G. Ruele
Understanding Cryptocurrencies, Wolfgang Karl Hardle, Campbell R. Harvey, Raphael C. G. Ruele
Sim Kee Boon Institute for Financial Economics
Cryptocurrency refers to a type of digital asset that uses distributed ledger, or blockchain, technology to enable a secure transaction. Although the technology is widely misunderstood, many central banks are considering launching their own national cryptocurrency. In contrast to most data in financial economics, detailed data on the history of every transaction in the cryptocurrency complex are freely available. Furthermore, empirically oriented research is only now beginning, presenting an extraordinary research opportunity for academia. We provide some insights into the mechanics of cryptocurrencies, describing summary statistics and focusing on potential future research avenues in financial economics.
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 …