“Virgil Got a Patek on my Wrist Goin’ Nuts”: Evaluating the Returns to Rolex, Patek Philippe, and Audemars Piguet Watches Using a Repeat Sales Regression and Portfolio Diversification Theory

Abstract

This paper is the first to evaluate the luxury watch market using a proprietary data set scraped from the website www.collectorsquare.com. Using 9,159 auction results of Rolex, Audemars Piguet, and Patek Philippe watches, we construct a price index for the watch market following the Bailey et al. (1963) Repeat Sales Regression (RSR) methodology. We find average quarterly returns to watches of 2.68% with a corresponding standard deviation of 21.58%, yielding a Sharpe Ratio that is much lower than many of the standard financial assets we evaluated. While watches do not exhibit strong risk-adjusted returns, we find some evidence that they offer a diversification benefit to portfolios containing multiple standard financial assets and could be an alternative to commodities for investors looking to hedge out market risk. Further analyses also show that liquidity is not an issue in this market and watches follow standard Liquidity Premium Theory. Nevertheless, more research is needed to assess the diversification potential of watches in portfolios containing many assets along with the feasibility of institutionalizing investment in this collectible market.