Does it Pay to Invest in Art? A Selection-corrected Returns Perspective

Roman Kräussl, Arthur Korteweg and Patrick Verwijmeren
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Patrick Verwijmeren: LSF

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: This paper shows the importance of correcting for sample selection when investing in illiquid assets with endogenous trading. Using a large sample of 20,538 paintings that were sold repeatedly at auction between 1972 and 2010, we find that paintings with higher price appreciation are more likely to trade. This strongly biases estimates of returns. The selection-corrected average annual index return is 7 percent, down from 11 percent for traditional uncorrected repeat-sales regressions, and Sharpe Ratios drop from 0.4 to 0.1. From a pure financial perspective, passive index investing in paintings is not a viable investment strategy, once selection bias is accounted for. Our results have important implications for other illiquid asset classes that trade endogenously. "Keywords: ""Art investing; Selection bias; Asset allocation"""

JEL-codes: D44 G1 Z11 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cul
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Citations: View citations in EconPapers (1)

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http://wwwen.uni.lu/content/download/63920/807060/ ... tive_July%202013.pdf (application/pdf)

Related works:
Journal Article: Does it Pay to Invest in Art? A Selection-Corrected Returns Perspective (2016)
Working Paper: Does it pay to invest in Art? A Selection-corrected Returns Perspective (2013)
Working Paper: Does it pay to invest in art? A selection-corrected returns perspective (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:13-7

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