From Playroom to Portfolio: LEGO Sets as an Alternative Investment Strategy

Abstract

This thesis investigates the investment potential of LEGO sets as an alternative non-financial asset by examining whether they can enhance the diversification and risk-return performance of a traditional diversified portfolio. The performance of LEGO sets as an alternative non-financial asset class is evaluated using two price indices: one constructed using an equal-weighting methodology and the other using a value-weighted methodology. Both are based on monthly historical transaction data for 9,007 LEGO sets from January 2010 to March 2025. Drawing on existing literature, the thesis applies a portfolio optimization framework, factor regression analysis, and traditional risk-adjusted performance measures. Additionally, a hedonic regression analysis is conducted, and weak-form market efficiency is tested using autocorrelation and unit root tests. Lastly, the size of the illiquidity premium is estimated using differential returns. The secondary market value of LEGO sets is influenced by specific set characteristics, some of which also affect returns. Including LEGO sets can improve the risk and return performance of a traditional diversified portfolio. Furthermore, LEGO sets shows superior risk-adjusted performance compared to both traditional assets, such as equities and bonds, and a sample of alternative assets. LEGO sets have low and insignificant exposure to most systematic risk factors, except for changes in inflation, and also exhibit low correlation with most assets. There is evidence of weak-form market inefficiency in the secondary market for LEGO sets, and LEGO as an alternative non-financial asset class also appears to be subject to an illiquidity premium.The findings provide evidence that LEGO sets may serve as a “safe haven” asset, offering diversification benefits and the potential to outperform most traditional assets, suggesting that private investors, such as LEGO enthusiasts, could benefit from including LEGO sets in their portfolios. Moreover, the presence of weak-form market inefficiencies suggests that individuals with personal skills and insights can achieve excess returns. LEGO sets are potentially subject to an emotional premium derived from non-pecuniary utility, which the analysis does not capture. This may introduce omitted variable bias and distort the estimated risk-return characteristics, as LEGO sets may be overpriced relative to their fundamental value.