An Empirical Analysis of the Performance of Luxury Watch Portfolios among High-Net-Worth Individuals in India During the COVID-19 Pandemic

Abstract

This study empirically evaluates luxury watches owned by high-net-worth individuals (HNIs) in India as unconventional alternative assets providing diversifying benefits. During the COVID-19 pandemic, the major stock exchanges in India, NSE and BSE, faced negative returns and high volatility, igniting numerous conservative investors to divest from traditional investments and retain alternative assets, such as luxury watches, due to their low correlation to financial markets. Owing to supply chain disruptions and demand forces, the overall secondary watch market prices surged throughout this period, creating high economic value for investors. Through hypothesis testing and attribution analysis, this paper evaluates the performance of watch portfolios owned by 57 HNIs, comprising of 464 watches, to investigate whether luxury watches are viable investments during economic downturns within the domain of alternative investments. Hence, this study employs suitable attribution tools such as Sharpe ratio, M2 Alpha, Treynor Measure and Jensen’s Alpha to understand the strength of their performance. Using academic literature, market data and primary data, this study found that luxury watches provided substantial portfolio diversification benefits and outperformed traditional assets like the NIFTY50 and gold in terms both nominal and risk adjusted returns during the pandemic. Brands such as Patek Philippe, Rolex, and Audemars Piguet achieved the highest performance, as Patek Philippe demonstrated superior risk-return trade-offs. Despite challenges such as valuation complexities and liquidity constraints, luxury watches provided remarkable upside potential, benefiting from a high retention rate due to their unique emotional features. Ultimately, the findings suggest that luxury watches can be viable alternative investments considering that 65% of these HNIs viewed their watch purchases as investment opportunities.