Art Investment: Hedging or Safe Haven through Financial Crises

Abstract

We analyze long-term art auction sales data focusing on and around financial crisis periods with other investment returns to understand whether art can be considered a safe haven during volatile times or a hedging option in general by analyzing art auction data in a volatile emerging market. Our findings suggest 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 on average to enhance returns and to decrease risk of portfolios and improve diversification. However, we do not discard the safe haven hypothesis either. Although the auction data on the crisis period is limited, results of and around crisis periods show art returns are positively correlated with various volatility indices. In addition, the number of art transactions also increases after the crisis years, which may be a sign of liquidity requirement of some investors and an opportunity for buyers. 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, Hedging, Diversification

JEL Classification: G1, G11, G15