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Hard assets: The returns on rare diamonds and gems

Author

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  • Renneboog, Luc
  • Spaenjers, Christophe

Abstract

This note examines the investment performance of diamonds and other gems (sapphires, rubies, and emeralds) over the period 1999–2010, using a novel data set of auction transactions. Over our time frame, the annualized real USD returns for white and colored diamonds equaled 6.4% and 2.9%, respectively. Since 2003, the average returns have been 10.0%, 5.5%, and 6.8% for white diamonds, colored diamonds, and other gems, respectively. Both white and colored diamonds outperformed stocks between 1999 and 2010. Nevertheless, gem returns covary positively with stock returns, underlining the importance of wealth-induced demand for luxury consumption in collectibles markets.

Suggested Citation

  • Renneboog, Luc & Spaenjers, Christophe, 2012. "Hard assets: The returns on rare diamonds and gems," Finance Research Letters, Elsevier, vol. 9(4), pages 220-230.
  • Handle: RePEc:eee:finlet:v:9:y:2012:i:4:p:220-230
    DOI: 10.1016/j.frl.2012.07.003
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    References listed on IDEAS

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    1. Yacine Aït-Sahalia & Jonathan A. Parker & Motohiro Yogo, 2004. "Luxury Goods and the Equity Premium," Journal of Finance, American Finance Association, vol. 59(6), pages 2959-3004, December.
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    3. 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.
    4. 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, April.
    5. Combris, Pierre & Lecocq, Sebastien & Visser, Michael, 1997. "Estimation for a Hedonic Price Equation for Bordeaux Wine: Does Quality Matter?," Economic Journal, Royal Economic Society, vol. 107(441), pages 390-402, March.
    6. Dimson, Elroy & Spaenjers, Christophe, 2011. "Ex post: The investment performance of collectible stamps," Journal of Financial Economics, Elsevier, vol. 100(2), pages 443-458, May.
    7. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
    8. Meese, Richard A & Wallace, Nancy E, 1997. "The Construction of Residential Housing Price Indices: A Comparison of Repeat-Sales, Hedonic-Regression and Hybrid Approaches," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 51-73, Jan.-Marc.
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    Cited by:

    1. repec:spr:rvmgts:v:12:y:2018:i:4:d:10.1007_s11846-017-0234-3 is not listed on IDEAS
    2. repec:gam:jjrfmx:v:12:y:2019:i:2:p:79-:d:227995 is not listed on IDEAS
    3. Renneboog, L.D.R., 2013. "The Returns on Investment Grade Diamonds," Discussion Paper 2013-025, Tilburg University, Center for Economic Research.
    4. Esmeralda A. Ramalho & Joaquim J.S. Ramalho, 2014. "Convenient links for the estimation of hedonic price indexes: the case of unique, infrequently traded assets," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 68(2), pages 91-117, May.
    5. Auer, Benjamin R. & Schuhmacher, Frank, 2013. "Diamonds — A precious new asset?," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 182-189.
    6. repec:eee:intfin:v:58:y:2019:i:c:p:184-207 is not listed on IDEAS
    7. Low, Rand Kwong Yew & Yao, Yiran & Faff, Robert, 2016. "Diamonds vs. precious metals: What shines brightest in your investment portfolio?," International Review of Financial Analysis, Elsevier, vol. 43(C), pages 1-14.
    8. Laurs, Dries & Renneboog, Luc, 2019. "My kingdom for a horse (or a classic car)," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 184-207.

    More about this item

    Keywords

    Alternative investments; Auctions; Diamonds; Gems; Hedonic regression; Luxury goods;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature

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