Bubble or Bonanza: Hedging and Investment – Financial Crises and the Art Market
Posted: 25 Jun 2019
Date Written: June 20, 2019
We analyze long-term art auction sales data focusing on and around financial crisis periods with other investment returns in a major volatile emerging market. In general, Turkish art returns are either negatively correlated or at low correlation with other investments, including the equity market. We have the view that art can be considered as a hedging mechanism especially during uncertain times to enhance returns and to decrease risk of portfolios and improve diversification. The number of art transactions also increase after the crisis years, which may be a sign of liquidity requirement of some investors. First a hedonic price index is created using data from a reputable auction house using two decades of sales data (1994-2014). In line with literature, results show that art returns were lower than stock and bond returns including the contraction years of financial crisis periods of 1994, 2001 and 2009 and the major earthquake year of 1999. Although, the auction data on the crisis period is limited, results of and around crisis periods may suggest emerging markets art as a hedging instrument. The benefit is visible especially during years of contractions, which do not end with a very severe crisis, since the art auction market liquidity dries if the crisis is severe.
Keywords: Art Market, Hedonic Price Index, Portfolio Choice, Financial Crises, Emerging Markets, Investment, Risk, Safe Haven, Hedging, Diversification
JEL Classification: G1, G11, G15
Suggested Citation: Suggested Citation