Monthly Art Market Returns

Abstract

We provide an innovative methodological contribution to the measurement of returns on infrequently traded assets using a novel approach to repeat-sales regression estimation. The model for price indices we propose allows for correlation with other markets, typically with higher liquidity and high frequency trading. Using the new econometric approach, we propose a monthly art market index, as well as sub-indices for Impressionist, Modern, Post-War, and Contemporary paintings based on repeated sales at a monthly frequency. The correlations enable us to update the art index via observed transactions in other markets that have a link with the art market. In terms of Sharpe ratio we find that Contemporary art appears to perform almost as well as the S&P 500. Nevertheless, Art and Luxury goods companies show better performance numbers than any of the art indices. Interestingly, real estate is not as attractive as Contemporary and Post War art in terms of Sharpe ratios. None of the art index returns load significantly on momentum or liquidity factors, let alone the Fama-French factors. The most remarkable result pertains to the Contemporary art market index. In a sample up to the financial crisis the alpha and beta of the index feature the performance of a respectable hedge fund.

Keywords: art index, repeated sales, correlation

JEL Classification: C14, C43, Z11