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)

October 15, 2013


Abstract:     
This paper shows the importance of correcting for sample selection when investing in illiquid assets with endogenous trading. Using a large sample of 20,538 paintings that were sold repeatedly at auction between 1972 and 2010, we find that paintings with higher price appreciation are more likely to trade. This strongly biases estimates of returns. The selection-corrected average annual index return is 6.5 percent, down from 10 percent for traditional uncorrected repeat sales regressions, and Sharpe Ratios drop from 0.24 to 0.04. From a pure financial perspective, passive index investing in paintings is not a viable investment strategy once selection bias is accounted for. Our results have important implications for other illiquid asset classes that trade endogenously.

Number of Pages in PDF File: 46

Keywords: Art investing, Selection bias, Portfolio allocation

JEL Classification: D44, G11, Z11

working papers series





Download This Paper

Date posted: June 17, 2013 ; Last revised: October 17, 2013

Suggested Citation

Korteweg, Arthur G. and Kräussl, Roman and Verwijmeren, Patrick, Does it Pay to Invest in Art? A Selection-Corrected Returns Perspective (October 15, 2013). 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


Paper statistics
Abstract Views: 2,367
Downloads: 758
Download Rank: 17,585

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.610 seconds