Date of Award

Spring 2021

Degree Name

Bachelor of Science (BS)

Advisor(s)

Kevin Mirabile

Abstract

The purpose of this thesis is to evaluate the performance of luxury collectible goods as investments on a basis of absolute performance, risk-adjusted performance, and relative performance. Luxury goods as collectables are defined as physical or tangible items whose value is often driven by an investor’s emotional desire to own that specific item or items. The value of a particular collectible can be determined based on its condition, rarity, or the relationship between the supply and demand of the good. The data set used to analyze the performance of luxury goods is the KFLII. This index tracks the performance of a theoretical portfolio of ten collectable asset classes, using third-party indices. A descriptive statistics table, a correlation matrix, and a portfolio optimization were used to analyze the data on the KFLII and traditional assets like the S&P500, the Bloomberg Aggregate Bond Index, and the SPGSCI Commodities Index, as well as a mean difference t-test assuming unequal variances and a regression. We found that luxury collectible goods did not outperform equities on an absolute basis, but did outperformed equities, bonds, and commodities on a risk-adjusted basis due to its higher Sharpe ratio. Luxury collectible goods can also be seen as a diversifier as they have a negative correlation to the three traditional assets. When added to a portfolio of stocks and bonds, luxury collectible goods can increase the return and decrease the risk of the overall portfolio. Lastly, the KFLII also had a positive alpha and negative beta, which means that the index performed worse than the S&P500 during positive periods, but performed better during negative periods, providing hedging benefits to an investor.

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