DOES BITCOIN MAKE SWEDES SHARP(E)? An empirical study of the effect on riskadjusted return when including Bitcoin in the average Swedish investor´s portfolio

Abstract

Globalization causes domestic markets to become increasingly correlated, making it harder for investors to find instruments for diversification. Bitcoin is a cryptocurrency that has shown spectacular returns and drawn great attention during the past two years. This thesis investigates the effect on the risk-adjusted return when including Bitcoin in the average Swedish investors’ portfolio, and evaluates potential hedge and safe haven capabilities. We apply the Mean-Variance Optimization framework in adjunction to Monte Carlo simulations on bootstrapped daily returns to find the optimal Bitcoin allocation and its effect on risk-adjusted return. Correlation matrices are used to identify safe haven and hedging capabilities. Our results support the findings of previous research, that including Bitcoin in an average investors’ portfolio offers additional return to the same level of risk. Furthermore, Bitcoin show weak hedge and safe haven capabilities against many assets included in the average Swedish investors’ portfolio. Hence, the average Swedish investor is better off by including Bitcoin in the portfolio.