Articles de luxe, nouvelle valeur refuge ?

Abstract

The poor performance of the traditional asset classes like stocks, bonds and cash in the last few years have encouraged investors to turn away from these classes. Instead, they increase their capital invested in alternative investments such as private equity, real estate, commodities as well as emotional assets such as art, wine and luxury watches and handbags. Each year, these two last items beat record sales, so many investors envisage buying these assets. Therefore, it is really important to inform these investors about the potential risks of this investment. The purpose of this thesis is to examine the investment performance of watches and handbags and their potential diversification benefits for financial investors. A sample of 1,362 auction sales and a repeat sales regression will be used to create several constant-quality price indices. Thanks to these indices, many analyses could be performed and several conclusions could be drawn. The study shows the returns of watches and handbags are serially correlated; the returns are smoothed and this autocorrelation can bias the estimation of the volatility. Once the series of returns were corrected through the Okunev-White method, the allocation of portfolio can be performed. By applying the Markowitz mean-variance framework, the watches and handbags have positive weights in the optimal portfolios. The inclusion of watches and handbags in a portfolio leads to an upper shift of the efficient frontier and an improvement of the Sharpe ratio. However, the spanning test of Gibbons, Ross and Shanken shows that this improvement is not statistically significant. Given that the returns of luxury watches and handbags are not normally distributed, the volatility is not an accurate measure of risk. This thesis demonstrates the importance to take into account higher moments, like Skewness and Kurtosis, for portfolio optimization. A new portfolio optimization will be done by using the modified Value at Risk as a measure of the risk.