1. Art as a Financial Investment by Campbell, Rachel A.J. (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.
2. The Collateral Value of Fine Art by Thompson, Rex W. and McAndrew, Clare, Journal of Banking and Finance, Forthcoming
In this paper, we examine the effect of implicit seller reserves on the estimation of value-at-risk based on historical asset sales data. We direct our examination toward how and whether fine art might prove an appropriate form of loan collateral for banks and other financial institutions. Using a data set of French Impressionist paintings brought to auction from 1985 to 2001, we control for the effect of works that are bought in-house to construct a distribution of potential sale values that corrects for sample selection bias. It turns out that the downside risk surrounding deviations of auction prices from expert presale estimates depends criticall on how buy-ins are incorporated. If downside risk is assessed solely on historical experience with successful auction sales, the data appear to support loan-to-value ratios between fifty and a hundred percent larger than loan-to-value ratios that countenance the existence of seller reserves. The auction process, however, appears quantifiable and can reveal the necessary risk information required for loan consideration.[
3. Beautiful Asset: Art as Investment by Mei, Jianping and Moses, Michael (February 2004)
Repeated sales of art paintings at US auction are used to estimate an annual index of prices for the period of 1955-2004. Contrary to earlier studies, we find art compares favorably to government bonds as an investment, though it somewhat under-performs stocks. As in earlier studies, we find strong evidence of a negative “masterpiece effect”, meaning expensive paintings tend to under perform the art market index. Likewise, we have also detected the presence of a “winner’s curse”, meaning future returns to art are negatively related to excess payment, especially for impressionist paintings.
4. Dealers in Art by Shubik, Martin (September 2001)
A brief narrative and descriptive discussion of the role of private dealers in art together with some suggestive statistics is presented.
5. How Did Japanese Investments Influence International Art Prices? by Hiraki, Takato, Ito, Akitoshi, Spieth, Darius Alexander and Takezawa, Naoya (2005)
This study examines dynamics among the art, Japanese land, Japanese and U.S. stock market prices during the sample period from 1976 to 1998. We find that the Japanese land prices caused both art and Japanese stock prices to co-move during the sample period. We interpret this finding as suggesting that the accelerated appreciation of land prices in Japan stimulated Japanese investor demands for both international arts and Japanese stocks, especially, in the late 1980s. We further show that the Japanese land index as well as own art index returns are dominant factors in generating fluctuations of returns in most art indexes. We also find that an influence of the Japanese land prices on art prices was preserved and even increased in the 1990s after the burst of bubbles. We interpret this as suggesting that in the 1990s the decreasing land prices in Japan urged some Japanese investors to sell their holdings of arts at a considerable bargain.
6. The German Art Market by Roman Kraeussl (May 2007)
This paper discusses various aspects of the German art market, including a brief history of German art throughout the twentieth century and the great influence of World Wars I and II. Different styles and movements, such as Expressionism (e.g. Die Brücke, Der Blaue Reiter), Neue Sachlichkeit (New Objectivity) including Dada and Bauhaus and the classification of Entartete Kunst (Degenerate Art) during the Nazi regime, will be discussed. It also elaborates on German art after World War II, including East Germany's Socialist Realism and West Germany's international influences, the influence of Conceptual Art on contemporary German art and the more recent emergence of German photography and figurative paintings of the Neue Leipziger Schule (New Leipzig School). This paper analyzes the specific characteristics of collecting and dealing as it takes place in Germany. It therefore provides a more detailed account of galleries, auction houses and art fairs, as well as a short overview of museums and exhibitions. Finally, it discusses the position of the German art market in the international market and analyses transactions and sales turnover data. It also evaluates the recent market performance of different styles and individual artists. Finally, this chapter closes with a discussion of whether art might serve as an alternative asset class, with a special focus on the first German art fund.
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