Does it pay to invest in Art? A Selection-corrected Returns Perspective

Arthur Korteweg, Roman Kräussl and Patrick Verwijmeren
Additional contact information
Arthur Korteweg: Stanford Graduate School of Business, Stanford, California, United States of America
Patrick Verwijmeren: Erasmus University Rotterdam, Duisenberg School of Finance,The Netherlands; University of Melbourne; University of Glasgow

Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Published: 'The Review of Financial Studies', 2016, 29, 1007-1038.

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 (search for similar items in EconPapers)
JEL-codes: D44 G1 Z11 (search for similar items in EconPapers)
Date: 2013-10-03
New Economics Papers: this item is included in nep-cfn and nep-cul
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://papers.tinbergen.nl/13152.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:tin:wpaper:20130152

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