Beautiful Asset: Art as Investment

Repeated sales of art paintings at US auction are used to estimate an annual index of prices for the period of 1955-2004. Contrary to earlier studies, we find art compares favorably to government bonds as an investment, though it somewhat under-performs stocks. As in earlier studies, we find strong evidence of a negative "masterpiece effect", meaning expensive paintings tend to under perform the art market index. Likewise, we have also detected the presence of a "winner's curse", meaning future returns to art are negatively related to excess payment, especially for impressionist paintings.