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An Investigation into the Diversification Effects of Bitcoin for Caribbean Market Investors

  • Central Bank Of Barbados
  • 24 May,2023
  • 148
  • Working Papers,
  • Print

Over the last decade, cryptocurrencies have been growing rapidly in popularity. Most investors attempt to acquire a well-diversified and lucrative portfolio by investing in a multitude of assets. In preceding years, significant losses were experienced in the cryptocurrency industry caused by its volatile nature which further stimulated risk-averse decisions among investors. However, in recent months it has been regaining its value and generating returns for some investors. This study aims to determine the diversification effect through risk and return by using a counterfactual approach and to examine the volatility of Bitcoin in comparison to four Caribbean stock exchanges (Barbados Stock Exchange, Eastern Caribbean Stock Exchange, Jamaica Stock Exchange and Trinidad and Tobago Stock Exchange. The results indicate that Bitcoin does not significantly impact the return incurred by an investor. However, portfolio diversification can be increased by investing in Bitcoin. Overall, Bitcoin has a notably higher volatility in comparison to emerging market stocks.

An Investigation into the Diversification Effects of Bitcoin for Caribbean Market Investors_2023WP3