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

In the prologue of their 2013 book entitled Happy Money: The Science of Smarter Spending, authors Elizabeth Dunn and Michael Norton state: “When it comes to increasing the amount of money they have, most people recognize that relying on their own intuition is insufficient, spawning an entire industry of financial advisors. But when it comes to spending that money, people are often content to rely on their hunches about what will make them happy. And yet, if human happiness is even half as complicated as the stock market, there is little reason to assume that intuition provides a sufficient guide. …trying to uncover the causes of your own happiness through introspection is like trying to perform your own heart transplant. You have some idea of what needs to be done, but a surgical expert would come in handy. Consider us your surgical experts.” Making liberal use of anecdotes to illustrate findings from an array of happiness research projects, they conclude that: Keep Reading

Are high-grade diamonds competitive with conventional asset classes as investments? In his April 2013 paper entitled “The Returns on Investment Grade Diamonds”, Luc Renneboog examines secondary market returns and risks of investment grade gems (white diamonds, colored diamonds and other gems such as sapphires, rubies, and emeralds). He compares their investment performance metrics to those of stocks, corporate and government bonds, gold and real estate. He ignores trading frictions. Using data for 4,750 transactions at gem auctions during 1999 through 2012, he finds that: Keep Reading

How should investors view illiquid assets? In the January 2013 draft of his book chapter titled “Illiquid Asset Investing”, Andrew Ang summarizes the characteristics of investments in illiquid assets. Illiquid investments typically exhibit infrequent trading, small trades (in terms of number of units) and low turnover. Examples are hedge funds (to some degree), real estate and aesthetic investments such as art and jewels. He does not address the largest illiquid component of an individual’s wealth, human capital. Based on available research, he concludes that: Keep Reading

Are diamonds useful as investment portfolio diversifiers? In their draft papers entitled “An Examination of Diamonds as an Alternative Asset Class: Do They Have What it Takes to Make a Portfolio Sparkle?” of June 2012 and “The Return Characteristics of Diamonds” of July 2012, Kenneth Small, Jeff Smith and Erika Small investigate diamonds as an asset class (returns and correlations of returns with other asset classes). They consider price histories of an aggregate diamond index and of indexes for several classes of diamonds segregated by quality and size. They relate diamond index returns to those for U.S. equities, world equities, emerging markets equities, long-term U.S. corporate bonds and precious metals. Using weekly levels of diamond and other asset class indexes during 2001 through 2011, they find that: Keep Reading

How do fine wines fare recently against stocks as investment vehicles? In the June 2012 version of their paper entitled “A Study of the Evolution of High-End Wines in Switzerland”, Philippe Masset, Jean-Philippe Weisskopf and Vincent Deboccard construct the recent evolution of fine wine prices in the Swiss market (among the world’s largest for fine wines). They define fine wine as “wine with a secondary market value, ability to improve in a bottle, a strong track record [and] critical acclaim.” They compare performances of an index comprised of 225 fine wines (post-1969 vintages, mostly red) and a high-end (first growth) fine wine segment to those of equity market indexes. Using secondary market prices from a leading wine auction house in Switzerland during March 2002 through December 2011 (22,711 observations from 46 auctions), and contemporaneous stock index returns, they find that: Keep Reading

Is fine wine a good investment? Two recent studies are on the case. In their February 2010 paper entitled “Raise your Glass: Wine Investment and the Financial Crisis”, Philippe Masset and Jean-Philippe Weisskopf examine the risk, return and diversification benefits of fine wine. In their August 2011 paper entitled “Is Wine a Premier CRU Investment?”, Liam Devine and Brian Lucey investigate Bordeaux and Rhone wines as investments. Both studies employ repeat-sales regressions from auctions via The Chicago Wine Company to construct wine price indexes. Using wine auction prices and other sources of wine returns from as early as January 1996, they find that: Keep Reading

Do gems offer good returns? How do the returns of these tangible assets compare with those of other asset classes? In the April 2011 version of their paper entitled “Hard Assets: The Returns on Rare Diamonds and Gems”, Luc Renneboog and Christophe Spaenjers examine recent returns on precious gems in U.S. dollars. They concentrate on the upper end of gem quality for three categories: white diamonds, colored diamonds and other gems (emeralds, rubies and sapphires). They consider gem attributes such as weight, color, clarity, cut, location of sale, auction house, brand and certification as allowed by subsample sizes. Using worldwide auction data spanning 1999 (the first year of representative coverage in the source database) through 2010 (3,952 total sales), along with the contemporaneous values of the U.S. Consumer Price Index and returns for other worldwide asset markets, they find that: Keep Reading

Do stamps provide a good return compared to equities? Can investors use stamps to hedge against inflation? In the February 2010 version of their paper entitled “Ex Post: The Investment Performance of Collectible Stamps”, Elroy Dimson and Christophe Spaenjers investigate the returns on British collectible postage stamps over the long term. Using Stanley Gibbons stamp catalog prices to construct a value-weighted British stamp price index/returns and returns for other asset classes over the period 1900-2008, they conclude that: Keep Reading

Do works of art provide a good return compared to equities, or do they carry an aesthetic discount? Can investors use art to hedge equities? In their July 2009 paper entitled “Art as an Investment: the Top 500 Artists”, Roman Kraeussl and Jonathan Lee employ public auction prices from Artnet.com to construct and analyze a Top 500 Art Market index based on historical prices of artworks by the top 500 artists in the world (as ranked by Artprice.com). They relate art returns to those for commodities, corporate bonds, 10-year U.S. Treasury notes, hedge funds, private equity, real estate, global stocks and U.S. Treasury bills. Using prices for nearly 100,000 art transactions and contemporaneous quarterly levels of indexes for other asset classes over the period January 1985 through March 2009 (as available), they conclude that: Keep Reading