To Invest or Not to Invest in Art?

Recently, in 2013, Professors Bruno S. Frey (CREMA-Center for Research in Economics, Management and the Arts, Switzerland) and Reto Cueni (University of Zurich, also Switzereland) published a very interesting article, “Why Invest in Art?”, in The Economists’ Voice regarding the topic of investments in art.

Certainly, the record prices paid for paintings at auctions frequently attract the media’s attention. In 2012, Edvard Munch’s “The Scream” was sold for $120 million. That same year, Souren Melikian published an article in the New York Times complaining about the gradual transformations of the art market. He stated that decades ago, connoisseurs had been relying on their eyes when buying art; these days, according to Melikian, investors are driving the market without any sense for the beauty of art, only relying on the advice of art consultants and auction houses. If not because of its beauty, why do these people rush into the art market?

Status cannot fully account for the paradoxical price increase during the last recession. The strive for status is at least as old as art itself. Articles in the Wall Street Journal, Reuters or Forbes, among others, point out that there might be a third force at work: Art investment funds. For these funds, status is definitively not the relevant criterion for investment decisions. They buy and sell artworks anonymously. Investment funds deal with art because they want to make profits. But do they really make profits? And if not, what are the hidden costs and risks of art investments?

The answer to these questions is not easy, but in my opinion and in a general perspective, investments in financial assets normally yield only a monetary return while the possession of art in addition yields a psychic return due to the pleasure and social esteem of holding an artwork. In a competitive market the overall rate of return is equalized. It follows that the financial return must be smaller than in other markets where no such psychic return exists. As an investor, it is impossible to reliably forecast the financial return on any market. In contrast, the psychic return as an art collector is much better predictable. This is an important incentive to engage in art investment.

I woukd developed the new arguments on another articles centered in the answer to the question: Is Art Investment Profitable?, and to explain the Art Investment Risks, almost the risks existing in my mind. Thanks for follow me in this research.

Tags: Art, investment

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