Investing in works of art is profitable but somewhat less than often assumed or hoped. This is the conclusion arrived at by the Tilburg professor of Corporate Finance Luc Renneboog, and researcher Christophe Spaenjers, on the basis of data from over 1.2 million auction house sales of paintings, drawings and prints. Between 1951 and 2007, the value of art works rose by an average of 4 per cent per year.
Luc Renneboog and Christophe Spaenjers have studied the sales of 1.2 million art works by more than 10,000 artists: the largest art auction database ever. Using a ‘hedonistic regression analysis’, they calculated a price index, which showed that art works rose in value by an average of 4.03% between 1951 and 2007 in real terms (hence, corrected for inflation). In nominal terms, the price appreciation over this period amounts to 4.5 per cent.
In the period 2002-2007, when the art market was really booming, the average rise in the value of art works was higher, at 11.6% per year. These high average returns, the many spectacular returns on individual paintings (e.g. there were more than 1,000 paintings sold at more than USD 1 million in 2007 alone) and the growth in the number of wealthy individuals in the western economies as well as the developing world explains the increased interest in art as an investment.
But if profits from art are compared to those from financial investments in the long term, it appears that art is less profitable than stocks and bonds. The researchers thus conclude that art works should be purchased primarily for non-financial reasons, in the hope that the high transaction costs are compensated by the long-term increase in value.
Pop Art and Expressionism
Renneboog and Spaenjers also find evidence of a positive masterpiece effect: high-quality art makes a better investment. The most valuable artists are Pieter Bruegel (the Younger), Rubens, Goya, Ingres, Degas, Van Gogh, Kandinsky, Morandi, Picasso, Pollock, Klein, and Guanzhong.
Furthermore, the value of oil paintings has increased more than that of drawings and prints. And post-war schools of art such as Abstract Expressionism and Pop Art have done better than pre-war schools, although the former are characterised by more fluctuations in price.
According to the researchers, the price of art works is mainly determined by the reputation of the artist and the authenticity of the work. The subject of the work also plays a part. Self-portraits and townscapes, for example, command the best prices. The most expensive works are those sold by Sotheby’s or Christie’s in London or New York.
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