Abstract
This paper analyzes Bitcoin investment in terms of portfolio diversification. Over the period July 2011-April 2021, we use the copula-GARCH approach to test the time-varying dependence of Bitcoin in a portfolio composed of six stock markets (CAC40, DJIA, EUROSTOXX50, FTSE100, HANGSENG, and NIKKEI225). Our results reveal that volatility modeling provides better results with the Dynamic Conditional Correlation model. The performance of the portfolio is largely due to the high returns of Bitcoin which allows for better portfolio diversification. As a result, there is a mitigation of the extreme rates of return associated with crypto-currencies. Finally, while Bitcoin's contribution to the portfolio is more attributable to its risk than its return, it does play a role in stabilizing portfolio performance, for varying levels of risk.
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