Art as a Financial Investment

50 Pages Posted: 26 Feb 2020

See all articles by Rachel A.J. Pownall

Rachel A.J. Pownall

Tilburg University - Department of Finance; Maastricht University - Department of Finance

Date Written: March 2007


The comparatively poor performance of traditional asset classes in recent years has driven the search for greater returns via alternative asset classes. The desire to reap higher risk adjusted returns from diversification into assets which offer low and even negative correlation with equities and bonds is extremely desirable. There has been a huge growth in the traditional alternative investments such as real estate, commodity futures, private equity and hedge fund investments.

Additionally, a number of funds specialising in art have recently emerged. These also appear to offer a highly beneficial diversification strategy with extremely low correlation with traditional asset classes. It is important for investors to understand the risk and return characteristics of this new alternative asset class.

In this paper we take a closer look at art as an alternative asset, and look specifically at how this new alternative asset is expected to perform, also during bear markets, when the benefits of diversification are most needed. We look at the risk and return characteristics of art using art market indices, and the prospects for portfolio diversification in the art market using a variety of data across art market sectors, including the Old Master, European Impressionist, Modern and Contemporary art markets. Due to the low correlation of art with other asset classes, we find opportunities for portfolio diversification across art markets and across asset classes. The results hold, even allowing for the high transaction costs, which are encountered when trading art, when spread over a longer time horizon.

Keywords: Alternative Investments, Portfolio Allocation, Risk management

JEL Classification: G11

Suggested Citation

Pownall, Rachel Ann Jane, Art as a Financial Investment (March 2007). Available at SSRN: or

Rachel Ann Jane Pownall (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD

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