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Aesthetic Investments

Are aesthetic investments other than gold (such as art, gems, stamps and wine) viable portfolio options? These blog entries address investing in these alternative asset classes.

Neural Network Software Valuation of Fine Art

Given the uniqueness of fine art objects and uncertainties in demand (at auctions), can investors in paintings get accurate estimates of market values of holdings and potential acquisitions? In their March 2019 paper entitled “Machines and Masterpieces: Predicting Prices in the Art Auction Market”, Mathieu Aubry, Roman Kräussl, Gustavo Manso and Christophe Spaenjers compares accuracies of value estimates for paintings based on: (1) a linear hedonic regression (factor model), (2) neural network software and (3) auction houses. For the first two, they employ 985,188 auctions of paintings during 2008–2014 for in-sample training and 104,404 auctions of paintings during the first half of 2015 for out-of-sample testing. Neural network software inputs include information about artists and paintings (year of creation, materials, size, title and markings), and images of the paintings. Using information about artists/paintings and images and auction house estimates and sales prices for the specified 1,089,592 paintings by about 125,000 artists offered through 372 auction houses during January 2008 through June 2015, they find that:

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Classic Cars as an Alternative Investment

Are some types of cars attractive alternative investments? In their September 2018 paper entitled “My Kingdom for a Horse (or a Classic Car)”, Dries Laurs and Luc Renneboog investigate price determinants and investment performance of classic cars from veteran cars (built 1888-1907) through modern classics (1975-1990). They estimate returns and risks for several classic car price indexes via a hedonic price methodology that accounts for physical attributes (such as engine displacement), condition, rarity, uniqueness and provenance. They then compare results to those for financial and other real asset classes. Using a sample of 29,002 global auction sales with hedonic model inputs, plus U.S. inflation data and price series for other asset classes, during 1998 through 2017, they find that:

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Toys for Young (and Old) Investors?

Are premium toys attractive alternative investments? In their April 2018 paper entitled “LEGO – The Toy of Smart Investors”, Victoria Dobrynskaya and Julia Kishilova study LEGO sets as an alternative investment. A secondary market for these sets with 10,000+ daily transactions, affordable to any retail investor, has evolved since 2000. Brickpicker.com tracks prices for each set (either new or used) as the average of its 30 most recent transactions, updated monthly. The authors focus on new sets for comparability with primary market prices. They consider raw prices and construct both a simple diversified index and an hedonic diversified index that accounts for variation in LEGO set characteristics over time (changing themes, set sizes and release years). Using prices from Brickpicker.com since 2000 and from The Ultimate Guide to Collectible LEGO Sets since 1987 for 2,322 LEGO sets across 44 themes through 2015, they find that:

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Survey of Research on Silver, Platinum and Palladium as Investments

What research is available bearing on silver, platinum and palladium as investments? In their April 2017 paper entitled “The Financial Economics of White Precious Metals – A Survey”, Samuel Vigne, Brian Lucey, Fergal O’Connor and Larisa Yarovaya summarize the body of academic research on the financial economics of silver, platinum and palladium. The survey covers relevant studies of market efficiency, predictability, behavioral influences, diversification benefits, volatility drivers, macroeconomic influences and relationships with other assets. Based on this research, they conclude that: Keep Reading

Contrarian Sports Betting as a Diversifying Investment

Can systematic, contrarian sports betting usefully diversify conventional investments? In their June 2016 paper entitled “Sports Betting As a New Asset Class: Can a Sports Trader Beat Hedge Fund Managers from 2010-2016?”, Lovjit Thukral and Pedro Vergel investigate whether a specific sports betting strategy outperforms and diversifies the Credit Suisse Hedge Fund Index and the S&P 500 Index. The strategy hypothesizes that horse racing favorites are consistently overrated by betting 1% of a hypothetical portfolio against the top four (lowest odds) horses in each regulated race in the UK. Using historical data from Betfair Exchange for 57,000 horse races and contemporaneous annual returns for the Credit Suisse Hedge Fund Index and the S&P 500 Total Return Index during January 2010 through early January 2016, they find that: Keep Reading

Illiquid Asset Returns over the Long Run

Are illiquid assets competitive as investments with liquid financial assets over the long run? In his March 2016 paper entitled “The Long-Term Returns to Durable Assets”, Christophe Spaenjers summarizes long-term returns for three types of illiquid assets since the start of the 20th century:

  1. Houses and farmland.
  2. Collectibles (art, stamps, wine and violins).
  3. Gold, silver and diamonds.

He focuses on capital gains but comments on ancillary costs and potential associated income where relevant. Using available monthly price indexes for these assets from a variety of sources during 1900 through 2014, he finds that: Keep Reading

Return for the Keynes Art Collection

Is an art collection a good investment? In the August 2015 version of their paper entitled “Art as an Asset and Keynes the Collector”, David Chambers, Elroy Dimson and Christophe Spaenjers study the performance of an actual buy-and-hold art portfolio, the collection of economist John Maynard Keynes. “Keynes purchased artworks through various channels between 1917 and 1945, and bequeathed his entire art collection to King’s College in Cambridge upon his death the following year. This collection consists of over a hundred pieces by various artists, including Modern Masters such as Braque, Cezanne, Matisse, Picasso, and Seurat, but also friends and acquaintances of Keynes such as Spencer Gore, Duncan Grant, and William Roberts. It has remained intact to the present day.” Using purchase prices/dates, insurance valuations, auction estimates and terminal expert appraisals at the end of 2013 (maximum holding period 96 years), they find that: Keep Reading

Unbiased Return on Art

For an illiquid asset class such as art, many individual assets do not trade within commonly used return measurement intervals (such as a year). When a relatively few works of art account for most of the trading, measured returns derive mostly from these few works. If the returns for frequently and seldom traded art differ, there would be a disconnect between measured returns and overall asset class performance. In the October 2013 version of their draft paper entitled “Does it Pay to Invest in Art? A Selection-corrected Returns Perspective”, Arthur Korteweg, Roman Kraussl and Patrick Verwijmeren examine such sample selection bias for art (paintings) as an asset class. Using a sample of 20,538 paintings sold 42,548 times at auction during 1972 through 2010, they find that: Keep Reading

Wine as a Long-term Investment

How does wine perform as a long-term investment? In the September 2013 version of their paper entitled “The Price of Wine”, Elroy Dimson, Peter Rousseau and Christophe Spaenjers examine the performance of wine as a long-term investment, with focus on the impact of aging. They employ long price histories for five long-established Bordeaux wines constructed from auction and dealer prices. They account for vintage effects via annual data on production yields and weather. They also consider the costs of storage and insurance. They calculate real returns based on UK inflation. Using 36,271 prices for 9,492 combinations of sale year, chateau, vintage and transaction type (auction of dealer) during 1900 through 2012, they find that: Keep Reading

Long-term Performance of Aesthetic Investments

Are collectibles good long-term investments? In their September 2013 paper entitled “The Investment Performance of Emotional Assets”, Elroy Dimson and Christophe Spaenjers estimate long-term returns for selected collectibles and review the risks associated with such investments. They focus on art, stamps and violins, and also consider wine and diamonds. Using repeat sales histories and catalog prices for aesthetic investments, along with contemporaneous returns for UK equities, UK government bonds/bills and gold, during 1900-2012, they find that: Keep Reading

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