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Diamonds — A precious new asset?

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  • Auer, Benjamin R.
  • Schuhmacher, Frank
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    Abstract

    During the recent turbulences in the world's financial markets, diamond companies have started advertising diamonds as a new asset that can hedge against market volatility and be a valuable portfolio component. To put this claim to the test, this article investigates (i) the performance of investments in diamonds of different quality grades, (ii) time-varying correlations between the returns on diamonds and traditional asset classes and (iii) the role of diamonds as a potential diversifier in a world market portfolio. Our results, based on monthly PolishedPrices diamond index data for the years 2002 to 2012, show that in this crisis-ridden period, an investment in a diversified diamond portfolio has outperformed a diversified stock market investment. Additionally, evidence on low time-varying correlations to traditional asset classes highlights that diamonds offer some diversification potential. However, further analysis shows that diamonds can only generate economically significant value in a world market portfolio (by either reducing risk or increasing mean return) when rather high diamond proportions are included in the portfolio.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 28 (2013)
    Issue (Month): C ()
    Pages: 182-189

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    Handle: RePEc:eee:finana:v:28:y:2013:i:c:p:182-189

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Diamonds; Performance; Correlation; Diversification; World market portfolio;

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    References

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    Cited by:
    1. Auer, Benjamin R. & Rottmann, Horst, 2013. "Is there a Friday the 13th effect in ermerging Asian stock markets?," OTH im Dialog: Weidener Diskussionspapiere 35, University of Applied Sciences Amberg-Weiden (OTH).

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