The Returns on Investment Grade Diamonds

CentER Discussion Paper Series No. 2013-025

33 Pages Posted: 16 Apr 2013 Last revised: 17 Apr 2013

See all articles by Luc Renneboog

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: April 16, 2013


This paper examines the risk-return characteristics of investment grade gems (white diamonds, colored diamonds and other types of gems including sapphires, rubies, and emeralds). The transactions are coming from gem auctions and span the period 1999-2012. Over our time frame, the annual nominal USD returns for white and colored diamonds amount to 8.1% and 7.4%, respectively, or 5.5% and 4.8% in real terms. For a Euro investor, the returns on white and colored diamonds are about 1.3% lower than for a USD investors but the Euro returns still beat inflation by 3.5% annually. The returns for Other Gem types (rubies, emeralds and sapphires) are more volatile and somewhat lower (4.5% annual nominal returns and 2.1% in annual real terms). Applying the hedonic regression method to the data set of auction transactions of investment grade diamonds, we are able to explain more than 95% of their price variation in white diamonds. Although the diamond returns since 1999 have been below those on gold, both white and colored diamonds have significantly outperformed the US and European stock markets, US and European real estate, US government bonds, as well as European government and corporate bonds. The reward-to-risk (Sharpe ratio) of white diamonds is very close to that of US corporate government bonds. The highest Sharpe ratio (by far) over the past 14 years was the one on gold. Still, in times of crisis investments in diamonds have shown an attractive risk-return tradeoff. In spite of a small positive correlation between the diamond and the equity markets, adding diamonds to an equity portfolio still have some diversification advantages.

Keywords: alternative investments, auctions, diamonds, gems, hedonic regressions, luxury goods

JEL Classification: G11, G12, Q3, Z11

Suggested Citation

Renneboog, Luc, The Returns on Investment Grade Diamonds (April 16, 2013). CentER Discussion Paper Series No. 2013-025, Available at SSRN: or

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE

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