Returns on art

By Felix Salmon
October 6, 2009
analysis of the art market, and conclude:

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Luc Renneboog and Christophe Spaenjers of Tilburg University have done their own analysis of the art market, and conclude:

Our art index has underperformed stocks since 1951 and bonds over the last quarter of a century (but at a higher risk). Moreover, there are high transaction costs associated with trading art, which reduce the reported returns. When considering the low profitability and the high riskiness of art investments, one can only conclude that art should primarily be bought for its beauty.

This study shows art returning 4.03% between 1951 and the top of the market in 2007. That’s low, in comparison to other findings in the literature:

The returns on art calculated in this study are lower than the outcomes in the often-cited studies by Goetzmann (1993) and Mei and Moses (2002), even though our time frame includes an extra boom period. We argue that this can be explained by the fact that our dataset has a much broader coverage than the ones used in earlier papers, and therefore not only captures the (re)sales by top artists at big auction houses.

I think this works more generally: if you could somehow include in the survey all the art that anybody ever buys, the aggregate returns would certainly be negative. Most art is bought in the primary market and is never sold, mainly because it never can be sold. To all intents and purposes, it has zero monetary value the minute that it leaves the gallery or artist’s studio.

The greatest investors in art never bought art as an investment. If you take the set of all art collectors, statistically speaking some small proportion of them will see their collections grow substantially in value. Those collectors are deemed in retrospect to have had a “great eye”. But people who buy art as an investment are almost certainly going to be disappointed — and even more disappointed if they get someone else to buy art for them.

The only time it makes sense to think in such terms is in terms of asset allocation and risk profile: if a large proportion of your net worth is tied up in art, that should be taken into account when constructing the rest of your investments and your estate planning strategy. But don’t think that art has any real chance of growing substantially in value.

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