Lego: The Toy of Smart Investors
Comment of the Day

January 23 2019

Commentary by Eoin Treacy

Lego: The Toy of Smart Investors

This report by Victoria Dobrynskaya and Julia Kishilova may be of interest to subscribers and answers the question why Lego prices have been the subject of asset price inflation.  

It is posted without further comment but here is a section:

We study a new alternative investment asset - LEGO sets. A huge secondary market for LEGO sets with tens of thousands of transactions per day has developed since the turn of the century. We find that LEGO investments outperform large stocks, bonds, gold and other alternative investments, yielding the average return of at least 11% (8% in real terms) in the sample period 1987-2015. Small and huge sets, as well as seasonal, architectural and movie-based sets, deliver higher returns. LEGO returns are not exposed to market, value, momentum and volatility risk factors, but have a unit exposure to the size factor, suggesting that this asset performs similarly to small stocks. A positive multifactor alpha of 4-5%, a Sharpe ratio of 0.4, a positive return skewness and a low exposure to standard risk factors make the LEGO toy an attractive alternative investment with a good diversification potential.

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