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Does it pay to invest in art? A selection-corrected returns perspective

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  • Korteweg, Arthur
  • Kräussl, Roman
  • Verwijmeren, Patrick

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 selectioncorrected average annual index return is 6.5 percent, down from 10 percent for traditional uncorrected repeat sales regressions, and Sharpe Ratios drop from 0.24 to 0.04. 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. --

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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2013/18.

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Date of creation: 2013
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Handle: RePEc:zbw:cfswop:201318

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Keywords: Art investing; Selection bias; Portfolio allocation;

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References

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Reported returns on investment for artwork are too high
    by Economic Logician in Economic Logic on 2014-01-08 15:33:00

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