A1480
Title: Minimum variance versus market cap portfolios in cryptocurrency market
Authors: Sakae Oya - Keio University (Japan) [presenting]
Teruo Nakatsuma - Keio University (Japan)
Abstract: Portfolio construction in cryptocurrency markets has primarily relied on market capitalization-weighted benchmarks, while alternative allocation strategies remain less explored. The risk-return performance of minimum variance portfolios relative to market cap portfolios within the cryptocurrency asset class is examined. Portfolios are constructed from a limited set of major cryptocurrencies, reflecting basic liquidity considerations. Covariance matrices are estimated using regularization-based methods to ensure stable estimation. Using historical return data, out-of-sample portfolio performance is evaluated over multiple periods. The main objective is to investigate whether empirical findings established in equity markets, where minimum variance portfolios often outperform market cap benchmarks in terms of risk-return efficiency, also hold in cryptocurrency markets. The analysis provides empirical evidence on the applicability of portfolio optimization techniques developed for traditional asset classes to this emerging market.
