Beyond Equity Luxembourg School of Finance Prof. Dr. Roman Krussl - PowerPoint PPT Presentation

Beyond Equity Luxembourg School of Finance Prof. Dr. Roman Kräussl 18 September 2014

Master in Wealth Management Luxembourg is the largest wealth management center in the Eurozone • Supply well trained private bankers • Attract talent to Luxembourg • Promote Luxembourg as a center of financial expertise • Create and disseminate new knowledge on wealth management Emotional assets Beyond Equity 2

Behavioral Finance & HNWIs Reasons for investing in art (utility derived from) go beyond monetary value alone: Aesthetic value; Passion for collecting; Doing good; Social status; Prestige Beyond Equity - Luxembourg School of Finance 3

The True Value of Art ??? n m ∏ ∏ 1 / n 1 / m ( P ) ( P ) − i , y i , y 1 = = = i 1 i 1 Index   y   X X z n m −   β − ij , y ij , y 1 ∑ ∑ ∑   exp   j     n m  = = =  j 1 i 1 i 1 Beyond Equity - Luxembourg School of Finance 4

“Fish Without Chips” Beyond Equity - Luxembourg School of Finance 5

Investing in Art? Top 500 Painters at Auction versus Benchmarks, 2003-2013 450 400 350 300 250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 S&P 500 Gold Real Estate Hedge Funds Art Top 500 www.art-finance.com Beyond Equity - Luxembourg School of Finance 6

Optimal Asset Allocation • Critical analysis of risk and return characteristics • Hedging opportunities; post-Lehman; downside risk Panel A: Excluding art < µ Asset Class Weights cov( R , R R ) − β = Restriction A Restriction B Restriction C i m m m ∞%>= w >=0% Asset class 25% >= w >=0% 18.75% >= w >=0% < µ Art 0.0000 0.0000 0.0000 var( R R ) Commodities 0.0506 0.1344 0.1866 m m m Corp. Bonds 0.4032 0.2500 0.1875 Equity 0.0000 0.1156 0.1875 Govt. Bonds 0.2043 0.2500 0.1875 Hedge Funds 0.3419 0.2500 0.1875 Private Equity 0.0000 0.0000 0.0000 • Role of art funds Real Estate 0.0000 0.0000 0.0634 Reward-to-variability ratio 2.4419 2.1642 1.7154 Mean portfolio return 0.0920 0.0897 0.0889 Standard dev. of portfolio return 0.0293 0.0320 0.0399 • Risk aversion / Advice for HNWIs Panel B: Including art Asset Class Weights Restriction A Restriction B Restriction C ∞%>= w >=0% Asset class 25% >= w >=0% 18.75% >= w >=0% Art 0.0000 0.0325 0.0572 Commodities 0.0506 0.1252 0.1875 Corp. Bonds 0.4032 0.2500 0.1875 Equity 0.0000 0.0923 0.1875 Govt. Bonds 0.2043 0.2500 0.1875 Hedge Funds 0.3419 0.2500 0.1875 Private Equity 0.0000 0.0000 0.0000 Real Estate 0.0000 0.0000 0.0053 Reward-to-variability ratio 2.4419 2.1837 1.7651 Beyond Equity - Luxembourg School of Finance Mean portfolio return 0.0920 0.0882 0.0856 7 Standard dev. of portfolio return 0.0293 0.0310 0.0369

Emerging Art Markets – Beyond BRICs Shirid Aliabadi (1973), “Miss Hybrid”, 2007 Beyond Equity - Luxembourg School of Finance 8

An Eye on the Times Beyond Equity - Luxembourg School of Finance 9

Hot Wheels Beyond Equity - Luxembourg School of Finance 10

Liquid Assets Beyond Equity - Luxembourg School of Finance 11

Feedback Very Much Welcome! Please email me via: roman.kraussl@uni.lu Or visit: www.art-finance.com Beyond Equity - Luxembourg School of Finance 12

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