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On the valuation of psychic returns to art market investments

  • Erdal Atukeren


    (ETH Zurich, KOF - Swiss Economic Institute)

  • Aylin Seçkin


    (Istanbul Bilgi University)

Investing in art objects yields financial and psychic returns. The psychic returns arise since art has a superior consumption good aspect as well. The question is whether it is possible to measure the psychic returns. One valuation method for estimating the psychic returns to investing in artworks is their rental price. Here, we make use of the prices charged by a Canadian fine art company for its art rental services and calculate the implied psychic returns to be about 28 percent. Next, we review the finance-theoretic approaches to measuring the psychic returns to investing in artworks. We follow Hodgson and Vorkink's (2004, Canadian Journal of Economics) suggestion that the alpha parameter in the CAPM captures the extent of net psychic returns. The evidence on alpha from the art market applications of the CAPM coupled with the transaction cost data from international art auctions also suggests that the psychic returns to investing in artworks might amount to about 28 per cent.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 26 (2007)
Issue (Month): 5 ()
Pages: 1-12

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Handle: RePEc:ebl:ecbull:eb-07z10027
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  1. repec:cup:cbooks:9780521612807 is not listed on IDEAS
  2. Andrew C. Worthington & Helen Higgs, 2003. "Art as an investment: Short and long-term comovements in major painting markets," Empirical Economics, Springer, vol. 28(4), pages 649-668, November.
  3. Chanel, O. & Gerard-Varet, L. A. & Ginsburgh, V., . "Prices and returns on paintings: an exercice on how to price the priceless," CORE Discussion Papers RP 1106, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Douglas Hodgson & Keith Vorkink, 2004. "Asset pricing theory and the valuation of Canadian paintings," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 629-655, August.
  5. Anderson, Robert C, 1974. "Paintings as an Investment," Economic Inquiry, Western Economic Association International, vol. 12(1), pages 13-26, March.
  6. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, 05.
  7. Baumol, William J, 1986. "Unnatural Value: Or Art Investment as Floating Crap Game," American Economic Review, American Economic Association, vol. 76(2), pages 10-14, May.
  8. Pesando, James E, 1993. "Art as an Investment: The Market for Modern Prints," American Economic Review, American Economic Association, vol. 83(5), pages 1075-89, December.
  9. Stein, John Picard, 1977. "The Monetary Appreciation of Paintings," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 1021-35, October.
  10. Benjamin J. Burton & Joyce P. Jacobsen, 1999. "Measuring Returns on Investments in Collectibles," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 193-212, Fall.
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