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

Arthur Korteweg, Roman Kräussl and Patrick Verwijmeren

The Review of Financial Studies, 2016, vol. 29, issue 4, 1007-1038

Abstract: This paper shows the importance of correcting for sample selection when investing in illiquid assets that trade endogenously. Using a sample of 32,928 paintings that sold repeatedly between 1960 and 2013, we find an asymmetric V-shaped relation between sale probabilities and returns. Adjusting for the resulting selection bias reduces average annual index returns from 8.7% to 6.3%, lowers Sharpe ratios from 0.27 to 0.11, and materially impacts portfolio allocations. Investing in a broad portfolio of paintings is not attractive, but targeting specific styles or top-selling artists may add value. The methodology naturally extends to other asset classes. Received October 18, 2013; accepted August 4, 2015 by Editor Andrew Karolyi.

Date: 2016
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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)
Working Paper: Does it pay to invest in art? A selection-corrected returns perspective (2013)
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