For my final project, I would like to explore art through its investment potential in a prospective portfolio. I think the trend we have been noticing through readings has shown that, for better or for worse, art has been evolving from a unique good to a commodity good, with the individual characteristics of art largely less important that its resale value in the secondary markets, especially when passed through channels like auctions. I think history has shown that art has been a relatively good investment; it is one of the only goods that has sustained a bull market for abnormally long periods of time, and can achieve substantial returns, which is of considerable significance given recent market conditions in the stock market and the near-zero returns of holding cash or cash equivalents. Since demand is, to some extent, artificially inflated do to the manipulation of buyer preferences, it seems like these steady, high returns can be sustainable in the long run, as the inherent value of art doesn't fluctuate, only demand, and the market has shown (through Hirst, Warhol, Gagosian, and other examples) that it is very good at maintaining or inflating demand. One of the most popular uses of art now is the buy-and hold mentality for the purposes of portfolio diversification. One this mindset grows in popularity, which it will if art continues to outperform alternative investments, art's path towards a pure commodity market will gain momentum. Questions I would like to address are: When was the general shift towards commodity art -- when did its use as an investment begin to gain popularity? What have its returns been over the years relative to other investments? Does the data actually show that it has sustained a large bull market? What percentage of art buyers can be labeled pure "investors," what is that proportion relative to other consumer segments, and has/how fast has that percentage been increasing? How has art failed in recessions -- is it generally recession-proof? What are the factors that would enable it to weather market downturns? Is the market for art liquid, is there active trading? Is the market mature, are there derivatives, options, futures, etc.? and others questions as well.
A possible outline might be:
- Intro, background
- Brief history of investment-side of art market
- including description of historical returns relative to other investments
- examples of art that have produces extraordinarily high returns
- Characteristics of investment market
- liquidity measures, trading volume, key players and exchanges, market today in terms of futures/investment vehicles
- description of general returns for all stratifications of art market, from most to least expensive
- how many investors are there? who are they, what is the trend?
- in terms of diversification of portfolio, what are its opposite investment types? what investment types does art hedge against, in terms of risk?
- Analysis of art as a commodity investment
- characteristics of art that make it an attractive investment
- features that enable it to withstand downturns, recessions
- features that differentiate it from other investments
- what artists/medium/other characteristics of art produce the best returns? the worst? and why
- Brief prediction of art investment trends in future
- conclusion / wrap-up
Of course, this could change as I start the project, but I think the analysis above would be fairly interesting.
Sample graph of returns:
Some possible sources:
Art market vs. Stock Market
Art Market Description
Art Market Monitor Article
Article about Art Market Bubbles
Economist Article about Hirst
Analysis about Art as an Investment
The Art of Investing in Art
Investment Returns and Risk Returns on Art
Art as a Financial Investment in Emerging Markets