Hedonic Pricing of Artworks: Evidence from German Paintings
38 Pages Posted: 6 Mar 2007
Date Written: March 4, 2007
This paper evaluates whether art might be a serious alternative to current standard asset classes like equities and bonds. We estimate the annual risk and return on German paintings, calculate what drives return on German paintings and evaluate whether German paintings can serve as a useful function in a well-diversified portfolio. This paper uses a unique data set, containing 1,688 auction price data for 23 'major' German painters over the period between January 1986 and November 2006. Hedonic regression results indicate that paintings by major German artists have yielded an annual geometric (nominal) return of merely 1.6% over this period. This paper finds that these paintings, despite their positive return and low correlation with the German equity market, should not be included in an optimal portfolio as an alternative investment and should be kept, merely, for their aesthetic return.
Keywords: Investing in art, alternative investments, hedonic regression, portfolio diversification, auction price records
JEL Classification: G11, G14
Suggested Citation: Suggested Citation