News - January 27, 2011

Art is a better investment than shares

Astrid Smit

Art has been an excellent form of investment over the past ten years, but it can be very risky too, LEI researchers have shown.

Adrian's Diary, 1969, by Dan Christensten
Investing in art is a strong option when the stock market is in the doldrums, research by LEI economists Ernst Bos and Aris Gaaff has suggested. The average return on investments in post-war and contemporary art has been between 35 and 40 percent over the last ten years, while the value of shares dropped by 20 percent. For anyone with an old master in the attic, the returns were minus four percent on average. Bos and Gaaf based their findings on data from 2,900 art auctions.
They did find considerable differences between art works, some of which were sold at a great loss. The differences in profits varied tremendously between artistic periods too. Contemporary and post-war art saw the biggest price rise. Older art works only come onto the market sporadically because most of them are owned by museums, which hardly ever sell them off.

Auctioned art works fetch the most
 The chance that an art work bought at an auction is later sold on for a higher price is 2.5 higher than for art bought in a gallery. It does need to be a work that stands out from other works and to be by an artist who is still working. And the same applies to art as to shares: high risks and high returns go hand-in-hand. Prices often rise steeply over several years, only to plummet afterwards. The price of older art works, which have already changed hands a number of times, is much more stable. The art market is not particularly transparent, says Bos. The goods are extremely heterogeneous and the volume of trade is much lower than with shares. Price development is determined by sales at auctions, as these are the most transparent. Bos sees his conclusions as 'good news in times of budget cuts affecting art.'