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Art as an Investment: Risk, Return and Comovements in Major Painting Markets

Author

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  • Andrew C. Worthington
  • Helen Higgs

Abstract

This paper examines the short and long-term price linkages among major art and equity markets over the period 1976-2001. The art markets examined are Contemporary Masters, French Impressionists, Modern European, 19th Century European, Old Masters, Surrealists, 20th Century English and Modern US paintings. A global equity index (with dividends and capitalisation changes) is also included. Multivariate cointegration procedures, Granger non-causality tests, level VAR and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to analyse short and long-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant short and long-run causal linkages between the various painting markets and between the equity market and painting markets. However, in terms of the percentage of variance explained most painting markets are relatively isolated, and other painting markets are generally more important than the equity market in explaining the variance that is not caused by innovations in the market itself. This suggests that opportunities for portfolio diversification in art works alone and in conjunction with equity markets exist, though in common with the literature in this area the study finds that the returns on paintings are much lower and the risks much higher than in conventional financial markets.

Suggested Citation

  • Andrew C. Worthington & Helen Higgs, 2001. "Art as an Investment: Risk, Return and Comovements in Major Painting Markets," School of Economics and Finance Discussion Papers and Working Papers Series 093, School of Economics and Finance, Queensland University of Technology.
  • Handle: RePEc:qut:dpaper:093
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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2001/Andrew%20Wortho%20-%20No.%2093.pdf
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    References listed on IDEAS

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    1. Renato Flôres & Victor Ginsburgh & Philippe Jeanfils, 1999. "Long- and Short-Term Portfolio Choices of Paintings," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 23(3), pages 191-208, August.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Ginsburgh, Victor & Jeanfils, Philippe, 1995. "Long-term comovements in international markets for paintings," European Economic Review, Elsevier, vol. 39(3-4), pages 538-548, April.
    4. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    5. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    6. O. Chanel & L. A. Gerard-Varet & V. Ginsburgh, 1994. "Prices and Returns on Paintings: An Exercise on How to Price the Priceless," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 19(1), pages 7-21, June.
    7. Goetzmann, William N, 1993. "Accounting for Taste: Art and the Financial Markets over Three Centuries," American Economic Review, American Economic Association, vol. 83(5), pages 1370-1376, December.
    8. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    9. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    10. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    11. Chanel, Olivier, 1995. "Is art market behaviour predictable?," European Economic Review, Elsevier, vol. 39(3-4), pages 519-527, April.
    12. Pesando, James E, 1993. "Art as an Investment: The Market for Modern Prints," American Economic Review, American Economic Association, vol. 83(5), pages 1075-1089, December.
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    Cited by:

    1. Fabian Bocart & Ken Bastiaensen & Peter Cauwels, 2011. "The 1980s Price Bubble on (Post) Impressionism," ACEI Working Paper Series AWP-03-2011, Association for Cultural Economics International, revised Nov 2011.
    2. Kathleen Goffey & Andrew Worthington, 2002. "Motor Vehicle Usage Patterns in Australia: A Comparative Analysis of Driver, Vehicle & Purpose Characteristics for Household & Freight Travel," School of Economics and Finance Discussion Papers and Working Papers Series 117, School of Economics and Finance, Queensland University of Technology.

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