Role of Luxury Watches in an Islamic Portfolio

This paper aims to explore the viability of luxury watches as an investment option for Muslim investors. This topic will allow for further diversifying the available investment options to retail investors. The unique characteristics of luxury watches allow them to weather certain economic conditions better than others. The Rolex brand was chosen due to its advantages over its competitors in terms of units manufactured, profits, market share, popularity, etc. Three analyses were conducted to gain a comprehensive understanding regarding the prospect of proposing Rolex watches as a suitable investment. The first was an index analysis, using price returns of 30 Rolex models on the secondary market during the February 2019 – February 2024 period. This was followed by a wavelet coherence and a partial wavelet coherence analysis, which allowed for understanding relationships among asset classes consisting of oil, gold, Islamic equities, Bitcoin, and Rolex watches.

Finally, a spillover analysis was conducted to observe how other assets reacted to shocks from each singular asset. Among the core findings, it was observed that all discontinued Rolex models within the Rolex index outperformed the Watch Market Index in the long-term. The wavelet analysis yielded a generally negative relationship between the price returns of luxury watches and Islamic equities in the long-term, with COVID-19 being a period of high correlation among the remaining correlation pairs. The spillover analysis depicted the Rolex index as a relatively stable and seemingly independent variable due to not being a net transmitter or receiver, barring a few outliers. In conclusion, luxury watches function as a safe haven during turbulent global economic conditions and largely behave independently against traditional hedges. These present a lucrative option for Muslim investors to diversify their holdings and stabilize their portfolios while ensuring stable returns in long-term frequencies.