Art as an Investment: An Attractive Asset Class?
In this section, authors comment on economic and financial topics.
The roots of modern finance arguably stretch back over 3,000 years to the Bronze Age. Since then, financial salespeople across the globe have sought to persuade others that they’ve discovered «a new, uniquely attractive investment opportunity.» In recent years, art has increasingly been pitched as such an opportunity.
Marketing materials from art investment providers often cite five main selling points:
Unfortunately, the evidence supporting these claims is limited. Compared to equities, bonds, real estate, commodities, or precious metals, academic research on the long-term risk-return profile of art remains sparse, primarily due to a lack of reliable historical data.
Still, many art dealers and investment promoters publish eye-catching return figures and questionable comparisons to equities, often with equity returns conveniently understated.
«From an academic standpoint, fine art may qualify at best as a moderately attractive investment.»
Despite data limitations, a small group of academics has published insightful empirical studies on the performance of art—especially paintings—over the past two decades. The consensus is clear: the returns of fine art investments significantly trail those of equities. Moreover, the relatively low volatility seen in art indices reflects how these indices are constructed – rather than the actual risks of owning individual artworks.
From an academic standpoint, fine art may qualify at best as a moderately attractive investment, and only if an investor can build a well-diversified portfolio of high-value works.
Inflated return expectations and flawed comparisons with equity markets are common among promotional materials reviewed for this article.
Moreover, these concerns represent only part of the broader issues at hand. Even beyond the question of returns, investing in art presents a host of practical challenges that rarely make it into sales brochures.
«Most art indices reflect auction sales only, ignoring private brokered transactions of peer-to-peer sales.»
Unlike equity or bond indices, art indices are not investable. Moreover, a single piece of art typically exhibits far greater price volatility than a diversified index representing hundreds of artists and thousands of artworks. Inferring expected volatility from such indices is misleading.
Most art indices reflect auction sales only, ignoring private brokered transactions or peer-to-peer sales, which actually make up the majority of the market. These indices fail to represent the full market accurately.
While contemporary art has outperformed older styles over the past 25 years, this outcome was far from predictable at the time. Future returns by genre or era remain unpredictable. Marketing that focuses solely on contemporary art indices—without disclosing underperformance in other styles—is misleading.
Individual artworks are highly illiquid, even more so than residential property. Most pieces cannot be sold quickly without accepting a material discount to the estimated market value.
«The art market is an unregulated and tiny market.»
Successful investing in art also requires deep domain knowledge to assess price fairness and detect fraud, particularly in provenance documentation. These issues are largely absent in regulated public markets.
Art is traded in an unregulated and highly opaque market – anyone can publish whatever figures or claims they choose, with little accountability. In addition, the art market is tiny: global annual transactions amount to only about $70 billion – just 0.06 percent of global equity market turnover (excluding bonds, FX, commodities, derivatives, and crypto).
In short, anyone considering significant art purchases should do so out of passion and personal interest, not in the hope of achieving a reliably strong risk-adjusted return.
is the founder and CEO of Gerd Kommer Invest and as well as the author of the . This article is a shortened version of a originally published on his website.
