Art as an Alternative Investment Tool for Portfolio Diversification

BcA. Ainur Akhmetova, BA

Bachelor's thesis

Abstract:

In the constantly changing financial environment, the importance of portfolio diversification is crucial as never. Technically, a portfolio that includes different kinds of securities for different kinds of industries is well-diversified. Nevertheless, traditional assets are often highly multicorrelated, as, for example, stocks and bonds, and are exposed to a similar amount of risk factors. The global crisis of 2008 was among the main reasons that pushed investors to consider alternative investment tools, including so-called emotional assets, among such are all forms of tangible art, collectibles, precious metals, wines, etc. Alternative assets, specifically art pieces, have historically shown little responsiveness to fluctuations in financial markets. That poses a question of whether including art in an investment portfolio would minimize the overall portfolio risks without compromising its returns associated with excluding conventional investment instruments such as stocks and bonds, which are often the most effective ones in terms of returns under stable market conditions. The following thesis takes tangible art as a main focus and explores its risks and returns on today’s financial market and its potential to be used as an instrument for portfolio diversification. The main aim is to come up with suggestions on how to successfully optimize (maximize the returns and minimize the risks) an investment portfolio by including artworks along the traditional assets.

Keywords

art, portfolio diversification, investment, emotional assets, modern portfolio theory

Language used: English

Date on which the thesis was submitted / produced: 13. 3. 2019

Thesis defence

• Supervisor: doc. Ing. Mansoor Maitah, Ph.D. Ph.D.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Bachelor programme / field:
Economics and Management / Economics and Management