Abstract

http://ssrn.com/abstract=2280099
 


 



Does It Pay to Invest in Art? A Selection-Corrected Returns Perspective


Arthur G. Korteweg


University of Southern California - Marshall School of Business

Roman Kräussl


Universite du Luxembourg - School of Finance; Emory University - Goizueta Business School

Patrick Verwijmeren


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

January 15, 2015


Abstract:     
This paper shows the importance of correcting for sample selection when investing in illiquid assets that trade endogenously. Using a sample of 32,928 paintings that sold repeatedly between 1960 and 2013, we find an asymmetric V-shaped relation between sale probabilities and returns. Adjusting for the resulting selection bias cuts average annual index returns from 8.7 percent to 6.3 percent, lowers Sharpe ratios from 0.27 to 0.11, and materially impacts portfolio allocations. Investing in a broad portfolio of paintings is not attractive, but targeting specific styles or topselling artists may add value. The methodology extends naturally to other asset classes.

Number of Pages in PDF File: 68

Keywords: Art investing, Selection bias, Portfolio allocation, MCMC

JEL Classification: D44, G11, Z11


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Date posted: June 17, 2013 ; Last revised: January 20, 2015

Suggested Citation

Korteweg, Arthur G. and Kräussl, Roman and Verwijmeren, Patrick, Does It Pay to Invest in Art? A Selection-Corrected Returns Perspective (January 15, 2015). Available at SSRN: http://ssrn.com/abstract=2280099 or http://dx.doi.org/10.2139/ssrn.2280099

Contact Information

Arthur G. Korteweg
University of Southern California - Marshall School of Business ( email )
3670 Trousdale Parkway
Los Angeles, CA 90089
United States
HOME PAGE: http://www-bcf.usc.edu/~korteweg/

Roman Kraeussl (Contact Author)
Universite du Luxembourg - School of Finance ( email )
4, rue Albert Borschette
Luxembourg, 1246
Luxembourg
+3524666445442 (Phone)
HOME PAGE: http://www.art-finance.com
Emory University - Goizueta Business School ( email )
1300 Clifton Road
Atlanta, GA 30322-2722
United States
+14042812253 (Phone)
+14047275238 (Fax)
HOME PAGE: http://www.art-finance.com
Patrick Verwijmeren
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
Feedback to SSRN


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