Art as an Investment: Risk, Return and Portfolio Diversification in Major Painting Markets

15 Pages Posted: 4 Jan 2020

See all articles by Andrew C. Worthington

Andrew C. Worthington

Griffith University

Helen Higgs

Queensland University of Technology - School of Economics and Finance

Abstract

The present paper examines risk, return and the prospects for portfolio diversification among major painting and financial markets over the period 1976-2001. The art markets examined are Contemporary Masters, French Impressionists, Modern European, 19th Century European, Old Masters, Surrealists, 20th Century English and Modern US paintings. The financial markets comprise US Treasury bills, corporate and government bonds and small and large company stocks. In common with the published literature in this area, the present study finds that the returns on paintings are much lower and the risks much higher than conventional investment markets. Moreover, while low correlations of returns suggest that opportunities for portfolio diversification in art works alone and in conjunction with equity markets exist, the construction of Markowitz mean-variance efficient portfolios indicates that no diversification gains are provided by art in financial asset portfolios. However, diversification benefits in portfolios comprised solely of art works are possible, with Contemporary Masters, 19th Century European, Old Masters and 20th Century English paintings dominating the efficient frontier during the period in question.

Keywords: Art and collectibles, Markowitz efficient frontier, portfolio diversification, risk and return

JEL Classification: C61, D81, G11

Suggested Citation

Worthington, Andrew C. and Higgs, Helen, Art as an Investment: Risk, Return and Portfolio Diversification in Major Painting Markets. Available at SSRN: https://ssrn.com/abstract=544293

Andrew C. Worthington

Griffith University ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia
+61 (0)7 3735 4273 (Phone)
+61 (0)7 3735 3719 (Fax)

Helen Higgs

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia
61 7 3864 4252 (Phone)
61 7 3864 1500 (Fax)

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