Research: Is Art A Good Investment?

Art has been rising as a fresh asset course for the well-diversified portfolio. The reported comes back are enough to capture anyone’s eyes: the index of artwork sales, utilized by art advisors to sell art funds, shows an average annual return of 10% over the past four decades. In short, investors are embracing art-as-an-asset-class as if it were a found out van Gogh newly.

Research we completed lately and presented in August 2013 at the European Finance Association conference shows investors would be smart to be wary. The results of fine art have been significantly overestimated, and the risk, underestimated. The root reason behind the overestimation of earnings (and an accompanying underestimation of risk) is what is known as selection bias.

  • Impressive risk to praise ratio
  • Someone outgoing and highly cultural
  • The company’s regulatory environment
  • 11:30am to noon – Networking
  • Total EMIs shouldn’t exceed 30% of your income
  • Searching Google for conditions like (websites on the market etc.)
  • Aggressively submit to list directories

People have suspected this bias in the indices used to report returns of some substitute asset classes for a long time, but our analysis is the first, we believe, to discover a way to account for it. The choice bias arises when returns derive from indices built on repeat sales of fairly illiquid assets that are not sold at random.

Many of the profits predicated on those kinds of indices – like the S&P/Case-Shiller Home Price Indices – may be biased up-wards. Not only are the returns of artwork lower than traders think, but also the risk is higher. Our analysis, of 20,538 paintings repeatedly sold between 1972 and 2010, found the Sharpe Ratio for art is 0.04, rather than the 0. 24 that is previously found.

The Sharpe Ratio on U.S. 0.30. (The Sharpe Ratio is the risk-free rate of come back – such as that of the 10-season U.S. Treasury relationship – subtracted from the common rate of come back for a asset or collection course, divided by the standard deviation of the return on the course or collection. The selection bias in art occurs for several reasons.

Among them: Paintings which have been in popular have a tendency to go to public sale more often and sell at higher prices. People also tend to sell the paintings which have increased in value the most since the time of purchase. A similar selection bias is at work in real estate probably, when, for instance, people sell houses after they have appreciated a lot in value.