Children’s toy or grown-ups’ gamble? LEGO sets as an alternative investment
Abstract
Purpose
The purpose of this paper is to study LEGO sets as a potential alternative asset class. An exhaustive sample of 10,588 sets is used to generate inferences regarding long-term LEGO performance, its diversification benefits and return determinants.
Design/methodology/approach
LEGO set performance is studied in terms of equal- and value-weighted portfolios, sorts based on set characteristics and cross-sectional regressions.
Findings
Over 1966–2018, LEGO value-weighted index accounted for survivorship bias enjoys 1.20% inflation-adjusted return per annum, well below 5.54% for equities. However, the defensive properties of LEGO are considerable, as including 5%–25% of LEGO in a diversified portfolio is beneficial for investors with varying levels of risk aversion. LEGO secondary market is relatively internationalised, with investors from larger economies, countries with higher per capita incomes and less income inequality are shown to trade LEGO more actively.
Practical implications
LEGO investors derive non-pecuniary utility that is separable from their risk-return profile. LEGO is not exposed to any of the Fama-French factors, however, set-specific size and value effects are also well-pronounced on the LEGO market, with smaller sets and sets with lower price-to-piece ratio exhibiting higher yields. Older sets are also enjoying higher returns, demonstrating a liquidity effect.
Originality/value
This is the first study to investigate the investment properties of LEGO as an alternative asset class from micro- and macro-financial perspectives that overcomes many survivorship bias limitations prevalent in earlier research. LEGO trading is shown to be an important source of valuable data to enable original robustness checks for prominent theoretical concepts from asset pricing and behavioural finance literature.
Keywords
Acknowledgements
The authors are grateful to all attendees of the 17th FRAP conference at Hanken School of Economics, Helsinki, Finland, for fruitful discussions that helped improve the paper, to an anonymous referee for their insightful comments, and to Alexander Panov and Arina Shuraeva for excellent research assistance.
Citation
Shanaev, S., Shimkus, N., Ghimire, B. and Sharma, S. (2020), "Children’s toy or grown-ups’ gamble? LEGO sets as an alternative investment", Journal of Risk Finance, Vol. 21 No. 5, pp. 577-620. https://doi.org/10.1108/JRF-02-2020-0021
Publisher
:Emerald Publishing Limited
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