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THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO

Year 2023, Volume: 6 Issue: 1, 42 - 52, 31.08.2023
https://doi.org/10.46238/jobda.1286651

Abstract

The purpose of this study is to find out the impact of traditional financial tools and digital tools on the investment portfolio’s risk and return in United State American financial market. It examined which portfolio can be an optimal portfolio when compared to two other portfolios, where first portfolio consist of traditional financial tools, second one is formed from digital tools or crypto currency, and the third one is the combination of both mentioned portfolios. The sample is taken from traditional financial tools (oil index, gold index, dollar index, and S&P 500 index), and digital tools or crypto currency (Bitcoin, Ethereum, and Ripple). The daily secondary data is taken from August 7,2015, to January 31, 2021. Sharp ratio was applied three times for each portfolio separately to extract logical findings by using solver subprogram of excel, further stepwise regression equation is utilized for dependent and independent variables, as a statistical analysis with the help of spss program. This study determines that the traditional financial tools and digital tools have a significant impact on the risk and return of the investment portfolio, and after comparing the three investment portfolios the study concludes that the combination of traditional financial tools and digital tools will achieve the optimal portfolio.

References

  • Adrianto, Y., & Diputra, Y. (2017). The Effect of Cryptocurrency on Investment Portfolio Effectiveness. Journal of Finance and Accounting, 5(6), 229–238.
  • Al Shabib, Drid. (2009). Investment and Investment Analysis, Amman, Dar Al-Yazury Scientific for Publishing and D Distribution.
  • Baumöhl, E. (2018). Are cryptocurrencies connected to forex? A quantile cross spectral approach. In Cryptocurrency Research Conference 2018. Cambridge.
  • Boiko, Viktor, Yelizaveta Tymoshenko, Anna Kononenko, and Dmitrii Goncharov. 2021. The optimization of the cryptocurrency portfolio in view of the risks. Journal of Management Information and Decision Sciences 24: 1–9.
  • Bouri, E., Molnár, P., Azzi, G., Roubaud, D., & Hagfors, L. I. (2017). On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier? Finance Research Letters, 20, 192–198.
  • Bouri, E., Naji, J., Molnár, P., & Roubaud, D. (2017). Bitcoin for Energy Commodities before and after the December 2013 Crash: Diversifier, Hedge or Safe Haven? Applied Economics, 49(50),5063–5073.
  • Brière, M., Oosterlinck, K., & Szafarz, A. (2015). Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin. Journal of Asset Management, 16(6), 365–373.
  • Brown, R., & Lee, N. (2018). The theory and practice of financial instruments for small and medium-sized enterprises. In EC-OECD Seminar Series on Designing better economic development policies for regions and cities. Paris: Organisation for Economic Co-operation and Development (OECD).
  • Burnie, A. (2018). Exploring the Interconnectedness of Cryptocurrencies using Correlation Networks. In Cryptocurrency Research Conference 2018. Cambridge, UK.
  • Carrick, J. (2016). Bitcoin as a Complement to Emerging Market Currencies. Emerging Markets Finance & Trade, 52(10), 2321–2334.
  • CFA Montreal., (2016). INVESTMENT PRINCIPLES - Information Sheet for CFA Professionals. 66.
  • Corbet, S., Meegan, A., Larkin, C., Lucey, B., & Yarovaya, L. (2018). Exploring the Dynamic Relationships between Cryptocurrencies and Other Financial Assets. Economic Letters, 165,28–34.
  • D. A. H. Abdulaziz., (2018). Diversification and its effect on Investment Portfolio’s Performance in Palestine. Al-Najah National University, Faculty of Graduate studies
  • Eisl, A., Gasser, S. M., & Weinmayer, K. (2015). Caveat emptor: Does Bitcoin improve portfolio diversification? Available at SSRN 2408997.
  • Ertz, M., & Boily, É. (2019). The rise of the digital economy: Thoughts on blockchain technology and cryptocurrencies for the collaborative economy. International Journal of Innovation Studies, 3(4), 84-93.
  • Ghilal, A., & Nach, H. (2019). La technologie de la chaîne de blocs: Fondements et applications. In M. Ertz, D. Hallegatte, & J. Bousquet (Eds.), La reconfiguration de l’echange marchand. Tour d’horizon, enjeux et perspectives (pp. 113-131)
  • Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio Diversification with Virtual Currency: Evidence from Bitcoin. International Review of Financial Analysis, Forthcoming.
  • Gupte, R., Venkataramani, B., & Gpta, D. (2012). Computation of financial inclusion index for India. Procedia-Social and Behavioral Sciences, 37, 133-149.
  • Judmayer, A., Stifter, N., Krombholz, K., & Weippl, E. (2017). Blocks and chains: introduction to bitcoin, cryptocurrencies, and their consensus mechanisms. Synthesis Lectures on Information Security, Privacy, & Trust, 9(1), 1-123.
  • Kajtazi, A., & Moro, A. (2019). The role of bitcoin in well diversified portfolios: A comparative global study. International Review of Financial Analysis, 61, 143-157.
  • Lee, D. K. C., Guo, L., & Wang, Y. (2015). Cryptocurrency: A new investment opportunity? Journal of Alternative Investments, 20(3), 16-40.
  • Lyandres, E., Marchica, M. T., Michaely, R., & Mura, R. (2018). Owners' Portfolio Diversification and Firm Investment: Theory and Evidence from Private and Public Firms. Johnson School Research Paper Series, (18-2013).
  • Mishkin, F. S. (2012), The Economics of Money, Banking, and Financial Markets, Fourth Canadian edition, (The Pearson Series in Economics).
  • Núñez Ferrer, J., Rinaldi, D., Thomadakis, A., Musmeci, R., Nesbit, M., Paquel, K., ... & Ehrhart, K. (2017). Financial Instruments: defining the rationale for triggering their use. CEPS Special Report, October 2017.
  • Osewe, L. A. (2020). Effect of Portfolio Diversification on Financial Performance of Investment Firms Listed at the Nairobi Securities Exchange, Kenya (Doctoral dissertation, University of Nairobi).
  • Sharpe, W. (1963). A Simplified Model for Portfolio Analysis. Management Science, 9(2), 277-293.
  • Viney, C., & Phillips, P. (2019). Financial institutions, instruments and markets. McGraw-Hill Australia. 40.
  • Wu, C. Y., & Pandey, V. K. (2014). The Value of Bitcoin in Enhancing the Efficiency of an Investor’s Portfolio. Journal of Financial Planning., 27(9), 44–52.
Year 2023, Volume: 6 Issue: 1, 42 - 52, 31.08.2023
https://doi.org/10.46238/jobda.1286651

Abstract

References

  • Adrianto, Y., & Diputra, Y. (2017). The Effect of Cryptocurrency on Investment Portfolio Effectiveness. Journal of Finance and Accounting, 5(6), 229–238.
  • Al Shabib, Drid. (2009). Investment and Investment Analysis, Amman, Dar Al-Yazury Scientific for Publishing and D Distribution.
  • Baumöhl, E. (2018). Are cryptocurrencies connected to forex? A quantile cross spectral approach. In Cryptocurrency Research Conference 2018. Cambridge.
  • Boiko, Viktor, Yelizaveta Tymoshenko, Anna Kononenko, and Dmitrii Goncharov. 2021. The optimization of the cryptocurrency portfolio in view of the risks. Journal of Management Information and Decision Sciences 24: 1–9.
  • Bouri, E., Molnár, P., Azzi, G., Roubaud, D., & Hagfors, L. I. (2017). On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier? Finance Research Letters, 20, 192–198.
  • Bouri, E., Naji, J., Molnár, P., & Roubaud, D. (2017). Bitcoin for Energy Commodities before and after the December 2013 Crash: Diversifier, Hedge or Safe Haven? Applied Economics, 49(50),5063–5073.
  • Brière, M., Oosterlinck, K., & Szafarz, A. (2015). Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin. Journal of Asset Management, 16(6), 365–373.
  • Brown, R., & Lee, N. (2018). The theory and practice of financial instruments for small and medium-sized enterprises. In EC-OECD Seminar Series on Designing better economic development policies for regions and cities. Paris: Organisation for Economic Co-operation and Development (OECD).
  • Burnie, A. (2018). Exploring the Interconnectedness of Cryptocurrencies using Correlation Networks. In Cryptocurrency Research Conference 2018. Cambridge, UK.
  • Carrick, J. (2016). Bitcoin as a Complement to Emerging Market Currencies. Emerging Markets Finance & Trade, 52(10), 2321–2334.
  • CFA Montreal., (2016). INVESTMENT PRINCIPLES - Information Sheet for CFA Professionals. 66.
  • Corbet, S., Meegan, A., Larkin, C., Lucey, B., & Yarovaya, L. (2018). Exploring the Dynamic Relationships between Cryptocurrencies and Other Financial Assets. Economic Letters, 165,28–34.
  • D. A. H. Abdulaziz., (2018). Diversification and its effect on Investment Portfolio’s Performance in Palestine. Al-Najah National University, Faculty of Graduate studies
  • Eisl, A., Gasser, S. M., & Weinmayer, K. (2015). Caveat emptor: Does Bitcoin improve portfolio diversification? Available at SSRN 2408997.
  • Ertz, M., & Boily, É. (2019). The rise of the digital economy: Thoughts on blockchain technology and cryptocurrencies for the collaborative economy. International Journal of Innovation Studies, 3(4), 84-93.
  • Ghilal, A., & Nach, H. (2019). La technologie de la chaîne de blocs: Fondements et applications. In M. Ertz, D. Hallegatte, & J. Bousquet (Eds.), La reconfiguration de l’echange marchand. Tour d’horizon, enjeux et perspectives (pp. 113-131)
  • Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio Diversification with Virtual Currency: Evidence from Bitcoin. International Review of Financial Analysis, Forthcoming.
  • Gupte, R., Venkataramani, B., & Gpta, D. (2012). Computation of financial inclusion index for India. Procedia-Social and Behavioral Sciences, 37, 133-149.
  • Judmayer, A., Stifter, N., Krombholz, K., & Weippl, E. (2017). Blocks and chains: introduction to bitcoin, cryptocurrencies, and their consensus mechanisms. Synthesis Lectures on Information Security, Privacy, & Trust, 9(1), 1-123.
  • Kajtazi, A., & Moro, A. (2019). The role of bitcoin in well diversified portfolios: A comparative global study. International Review of Financial Analysis, 61, 143-157.
  • Lee, D. K. C., Guo, L., & Wang, Y. (2015). Cryptocurrency: A new investment opportunity? Journal of Alternative Investments, 20(3), 16-40.
  • Lyandres, E., Marchica, M. T., Michaely, R., & Mura, R. (2018). Owners' Portfolio Diversification and Firm Investment: Theory and Evidence from Private and Public Firms. Johnson School Research Paper Series, (18-2013).
  • Mishkin, F. S. (2012), The Economics of Money, Banking, and Financial Markets, Fourth Canadian edition, (The Pearson Series in Economics).
  • Núñez Ferrer, J., Rinaldi, D., Thomadakis, A., Musmeci, R., Nesbit, M., Paquel, K., ... & Ehrhart, K. (2017). Financial Instruments: defining the rationale for triggering their use. CEPS Special Report, October 2017.
  • Osewe, L. A. (2020). Effect of Portfolio Diversification on Financial Performance of Investment Firms Listed at the Nairobi Securities Exchange, Kenya (Doctoral dissertation, University of Nairobi).
  • Sharpe, W. (1963). A Simplified Model for Portfolio Analysis. Management Science, 9(2), 277-293.
  • Viney, C., & Phillips, P. (2019). Financial institutions, instruments and markets. McGraw-Hill Australia. 40.
  • Wu, C. Y., & Pandey, V. K. (2014). The Value of Bitcoin in Enhancing the Efficiency of an Investor’s Portfolio. Journal of Financial Planning., 27(9), 44–52.
There are 28 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Review
Authors

Hanaa Husseın 0000-0002-7882-9850

Publication Date August 31, 2023
Published in Issue Year 2023 Volume: 6 Issue: 1

Cite

APA Husseın, H. (2023). THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO. Journal of Business in The Digital Age, 6(1), 42-52. https://doi.org/10.46238/jobda.1286651
AMA Husseın H. THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO. JOBDA. August 2023;6(1):42-52. doi:10.46238/jobda.1286651
Chicago Husseın, Hanaa. “THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO”. Journal of Business in The Digital Age 6, no. 1 (August 2023): 42-52. https://doi.org/10.46238/jobda.1286651.
EndNote Husseın H (August 1, 2023) THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO. Journal of Business in The Digital Age 6 1 42–52.
IEEE H. Husseın, “THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO”, JOBDA, vol. 6, no. 1, pp. 42–52, 2023, doi: 10.46238/jobda.1286651.
ISNAD Husseın, Hanaa. “THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO”. Journal of Business in The Digital Age 6/1 (August 2023), 42-52. https://doi.org/10.46238/jobda.1286651.
JAMA Husseın H. THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO. JOBDA. 2023;6:42–52.
MLA Husseın, Hanaa. “THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO”. Journal of Business in The Digital Age, vol. 6, no. 1, 2023, pp. 42-52, doi:10.46238/jobda.1286651.
Vancouver Husseın H. THE IMPACT OF DIVERSIFICATION IN TRADITIONAL AND DIGITAL FINANCIAL TOOLS ON REDUCING RISKS AND IMPROVING RETURNS OF THE INVESTMENT PORTFOLIO. JOBDA. 2023;6(1):42-5.

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