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Cambridge Journal of Economics 26:331-358 (2002)
Copyright © 2002 Cambridge Political Economy Society

Article

The monetary appreciation of paintings: from realism to Magritte

Luc Renneboog and Tom Van Houtte *

*Department of Finance and CentER, Tilburg University, and Pricewaterhouse Coopers.

Address for correspondence: Luc Renneboog, Tilburg University, Department of Finance and CentER, Warandelaan 2, 5000 LE Tilburg, The Netherlands; email: Luc.Renneboog{at}kub.nl

Abstract

This study investigates how investments in paintings compare with those in stocks in terms of risk–return trade-off using Sharpe and Treynor ratios and Markowitz efficient frontiers. A large database was analysed consisting of more than 10,500 auction prices of Belgian paintings over the period 1970–97. These paintings are the auctioned oeuvre of 71 internationally recognised painters representing the main artistic schools (from social realism to surrealism) over the period 1850–1950. Hedonic art returns are corrected for auction location and auction house, artistic school, painters' reputation, medium, signature and painting size. Surrealism and luminism have been the most popular currents of art (in monetary terms), while expressionism and symbolism have gained (financial) esteem. This study concludes that art investments underperform equity market investments owing to the high risk of investing in art and its high transaction costs, resale rights and insurance premia. In addition, the Markowitz efficient frontier shows limited diversification potential for art.

Key Words: Investing in art • Hedonic regression • Markowitz efficient frontier • Portfolio diversification


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