engleski

Diamond market analysis: Diamonds as an investment opportunity

Diamonds as an alternative investment commodity are rarely considered among investment professionals or portfolio managers. Also, we have not found any academic papers that systematically explore diamonds as an investment opportunity, i.e. that explore risk- return characteristics of diamonds. This lack of overall interest in diamond investing is caused by the nature of diamonds ; primarily by the fact that there is a high level of heterogeneity among the diamonds, which reduces their market liquidity and limits development of more transparent market. In this paper we aim to use standard statistical parameters in investment analysis (the mean value and the variance of expected return) to empirically examine risk-return characteristics of the diamonds as an alternative investment opportunity. Also, we examine correlation of returns between diamonds and some observed precious metals (gold, silver and platinum) and S&P 500 index (thus we also estimated the coefficient of correlation matrix of returns). Research findings seem to support following conclusions: (1) Diamonds as an investment commodity historically have a low rate of return, and also have a low level of investment risk (i.e. return volatility) ; (2) Diamonds historically have a lower rate of return and a lower level of investment risk in relation to observed precious metals and S&P 500 index ; (3) Coefficients of correlation of diamonds returns in relation to returns of observed precious metals are mainly near zero, thus the effects of diversification could be utilized in the process of portfolio management. However, a further research lies ahead in terms of incorporating the limitations that diamond secondary markets have, and in terms of the risk-return characteristics of stocks of the companies that are directly related with the diamond industry.

diamonds; diamond market; alternative investment; risk-return

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