Diamonds — A precious new asset?
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew J. Patton, 2009.
"Are "Market Neutral" Hedge Funds Really Market Neutral?,"
Review of Financial Studies,
Society for Financial Studies, vol. 22(7), pages 2295-2330, July.
- Andrew J. Patton, 2004. "Are "market neutral" hedge funds really market neutral?," LSE Research Online Documents on Economics 24819, London School of Economics and Political Science, LSE Library.
- Renneboog, L.D.R. & Spaenjers, C., 2011.
"Hard Assets : The Returns on Rare Diamonds and Gems,"
2011-056, Tilburg University, Center for Economic Research.
- Renneboog, Luc & Spaenjers, Christophe, 2012. "Hard assets: The returns on rare diamonds and gems," Finance Research Letters, Elsevier, vol. 9(4), pages 220-230.
- Christophe Spaenjers & Luc Renneboog, 2012. "Hard assets: The returns on rare diamonds and gems," Post-Print hal-00758542, HAL.
- Dirk G. Baur & Thomas K. McDermott, .
"Is gold a safe haven? International evidence,"
The Institute for International Integration Studies Discussion Paper Series
- Campbell, John, 2006.
3157877, Harvard University Department of Economics.
- Robert F. Engle & Kevin Sheppard, 2001.
"Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH,"
NBER Working Papers
8554, National Bureau of Economic Research, Inc.
- Engle, Robert F & Sheppard, Kevin K, 2001. "Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH," University of California at San Diego, Economics Working Paper Series qt5s2218dp, Department of Economics, UC San Diego.
- Ludovic Phalippou & Oliver Gottschalg, 2009.
"The Performance of Private Equity Funds,"
Review of Financial Studies,
Society for Financial Studies, vol. 22(4), pages 1747-1776, April.
- Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-73, April.
- Mark, Joy, 2011. "Gold and the US dollar: Hedge or haven?," Finance Research Letters, Elsevier, vol. 8(3), pages 120-131, September.
- Dirk G. Baur & Brian M. Lucey, 2010.
"Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold,"
The Financial Review,
Eastern Finance Association, vol. 45(2), pages 217-229, 05.
- Dirk G. Baur & Brian M. Lucey, 2007. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Institute for International Integration Studies Discussion Paper Series iiisdp198, IIIS.
- Schuhmacher, Frank & Eling, Martin, 2011. "Sufficient conditions for expected utility to imply drawdown-based performance rankings," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2311-2318, September.
- Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
- Frank Scott & Aaron Yelowitz, 2010. "Pricing Anomalies In The Market For Diamonds: Evidence Of Conformist Behavior," Economic Inquiry, Western Economic Association International, vol. 48(2), pages 353-368, 04.
- Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006.
"Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns,"
Journal of Financial Econometrics,
Society for Financial Econometrics, vol. 4(4), pages 537-572.
- Sheppard, Kevin & Cappiello, Lorenzo & Engle, Robert F., 2003. "Asymmetric dynamics in the correlations of global equity and bond returns," Working Paper Series 0204, European Central Bank.
- Ang, Andrew & Chen, Joseph, 2002. "Asymmetric correlations of equity portfolios," Journal of Financial Economics, Elsevier, vol. 63(3), pages 443-494, March.
- Debora L. Spar, 2006. "Markets: Continuity and Change in the International Diamond Market," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 195-208, Summer.
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:28:y:2013:i:c:p:182-189. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.