Are diamonds a safe haven?

摘要

The diamond market has recently experienced important structural changes moving from a monopolistic market to a more liberalised and competitive one. As a result, diamonds are being discussed as a new investment asset class, with possible valuable portfolio contributions. The aim of this paper is to analyse their potential role within an investment framework, using previously unpublished data. We use the GemShares and NASDAQ OMX patented license and Polished Prices proprietary Price Reporting Agency (PRA) database to build our own standardized financial polished diamond basket indices (DBIs), using actual reported data of traded prices, adjusted for liquidity by traded volume. The impact of adjusting for traded volume of investment grade (only) diamonds is sufficient to develop a unique subset different to that captured and reported by the PRA. We first construct an index for High-Quality (HQ) and a second one for Medium-Quality (MQ) diamonds so we can study both of their dynamics and investment features. We further analyse the relationship the two indices have with major macroeconomic and financial variables, as well as other precious commodities to investigate their role as safe haven or hedge. We find that the DBI~(HQ)Index returns are, on average, positively correlated with major macroeconomic variables—in particular with the Euro and Chinese Interest rates. The DBI~(MQ)Index returns are largely uncorrelated with the same macroeconomic variables—with the exception of Euro Interest rates and the Israeli Exchange rate. When we compare our Diamond Indices returns with major financial variables and other precious commodities, we find a broad lack of correlation between their returns, and significant difference between the DBI~(HQ)and DBI~(MQ)Indices. We may conclude that diamonds are broadly a poor hedge for any of the portfolios we considered, with a few important exceptions—especially gold. Using Bauer and Lucey’s (Financ Rev 45(2):217–229. doi: 10.2139/ssrn.952289 , 2010) approach we further tested the “safe haven value” and “hedging usefulness” of the two Indices. In contrast with previous studies we believe the unique data we accessed allowed us to demonstrate that diamonds represent a strong hedge for gold investors, and in addition exhibit features of a safe haven for stock markets during periods of financial stress.