I’m not a finance guy, but (this being Los Angeles) I’m working on a project for a company gets together a group of investors and pools their money into a portfolio of movies. Anyway, I’ve done a few projects for them – looking at characteristics of movies that make money and the like – but now they want an efficient frontier…
A few things occur to me… presumably the cross correlation between the returns of multiple movies made at the same time (assuming no sequels) is roughly 0 which makes life easier.
But I have a more fundamental question. I cracked open my trusty old finance book, and I’m finding info on efficient frontiers, and they seem to depend on systematic risk relative to the risk of an average risky asset.
Fine. All well and good. But it occurs to me that something is still missing, at least in a world in which one invests in movies and investment options are clumpy rather than smooth (i.e., you can choose to own X shares of a given company, X + 1 shares, X + 2, etc. – on the other hand, you can invest a million bucks in a movie, or 2 million, or what have you, and perhaps you can move in increments of 100,000 or so for small enough movies, but I suspect there will be folks looking askance at someone who wants to invest $2,341,094.38). In a clumpy world… you could easily end up with a big portion of your investment in one asset… which presumably increases your risk. How do you account for that?