Managing extreme price fluctuations in cryptocurrency markets are of central importance for investors in this market segment. Using a sample of highly liquid cryptocurrencies from January 2017 to June 2021, this paper proposes a dynamic investment strategy that selects cryptocurrencies based on their historical volatility and is complemented by a simple stop-loss rule. Our results reveal that investing in highly concentrated low volatility cryptocurrency portfolios with six to twelve months volatility look-back and holding period generate statistically significant excess returns. By including a simple stop-loss rule, the downside risk of cryptocurrency portfolios is reduced markedly, and the Sharpe ratios are improved significantly.
Description
Low-volatility strategies for highly liquid cryptocurrencies - ScienceDirect
%0 Journal Article
%1 KAYA2021102422
%A Kaya, Orçun
%A Mostowfi, Mehdi
%D 2021
%J Finance Research Letters
%K ba crypto_curr vol_timing volatility
%P 102422
%R https://doi.org/10.1016/j.frl.2021.102422
%T Low-volatility strategies for highly liquid cryptocurrencies
%U https://www.sciencedirect.com/science/article/pii/S1544612321004116
%X Managing extreme price fluctuations in cryptocurrency markets are of central importance for investors in this market segment. Using a sample of highly liquid cryptocurrencies from January 2017 to June 2021, this paper proposes a dynamic investment strategy that selects cryptocurrencies based on their historical volatility and is complemented by a simple stop-loss rule. Our results reveal that investing in highly concentrated low volatility cryptocurrency portfolios with six to twelve months volatility look-back and holding period generate statistically significant excess returns. By including a simple stop-loss rule, the downside risk of cryptocurrency portfolios is reduced markedly, and the Sharpe ratios are improved significantly.
@article{KAYA2021102422,
abstract = {Managing extreme price fluctuations in cryptocurrency markets are of central importance for investors in this market segment. Using a sample of highly liquid cryptocurrencies from January 2017 to June 2021, this paper proposes a dynamic investment strategy that selects cryptocurrencies based on their historical volatility and is complemented by a simple stop-loss rule. Our results reveal that investing in highly concentrated low volatility cryptocurrency portfolios with six to twelve months volatility look-back and holding period generate statistically significant excess returns. By including a simple stop-loss rule, the downside risk of cryptocurrency portfolios is reduced markedly, and the Sharpe ratios are improved significantly.},
added-at = {2021-12-20T15:36:23.000+0100},
author = {Kaya, Orçun and Mostowfi, Mehdi},
biburl = {https://puma.ub.uni-stuttgart.de/bibtex/2a3cdfb906ce298cc2dd7e65d80965358/georglender},
description = {Low-volatility strategies for highly liquid cryptocurrencies - ScienceDirect},
doi = {https://doi.org/10.1016/j.frl.2021.102422},
interhash = {50e4b7a5331ae761d40242c248030b49},
intrahash = {a3cdfb906ce298cc2dd7e65d80965358},
issn = {1544-6123},
journal = {Finance Research Letters},
keywords = {ba crypto_curr vol_timing volatility},
pages = 102422,
timestamp = {2021-12-20T14:36:23.000+0100},
title = {Low-volatility strategies for highly liquid cryptocurrencies},
url = {https://www.sciencedirect.com/science/article/pii/S1544612321004116},
year = 2021
}
