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Fine Watches as an Investment: Index Creation and Portfolio Selection
Harant, Evžen ; Chytilová, Julie (advisor) ; Malířová, Tereza (referee)
This thesis performs a risk-return analysis and examines portfolio diversi- fication opportunities of fine watches. To provide the reader with a basic understanding of the watch market and its functioning, main incentives, price determinants, and risks are studied. To effectively analyse price dy- namics on fine-watch market, the dataset including data from major auction houses and encompassing the period between 2006 and 2017 is created. Due to the unique nature of fine-watch market scene, the price index is then estimated with repeat sales method using original, three-stage, and three- stage flexible methods. Beyond the creation of price index, the portfolio analysis is performed and the thesis further focuses on potential benefits of watch index's inclusion in optimal portfolio. We find evidence that fine watches are potentially a good diversification tool due to its close-to-zero correlation with other chosen asset classes. However, computed risk-return characteristics shows a suboptimality of watch index relative to all selected assets except for two equity indices, NIKKEI 225 and EURO STOXX 50. As a result, we find no evidence of beneficial effect of fine watches' inclusion in portfolio. Keywords Watches, Financial Markets, Fine Watches, Investment, Portfolio Theory, Repeat Sales Method, Auction
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