Inves­ting in Art: Returns, Risks, and Mar­ket Dyna­mics Over Six Deca­des

This study analyses the financial performance of art investments over six decades using nearly three million auction transactions. Paintings yielded a real annual return of 2.49% (6.24% nominal), with significant variation across market segments. Higher returns were found in high-end markets, oil paintings, contemporary art movements (e.g. Minimalism and Pop Art), and works from artists' later career stages. While art underperformed most alternative investments (wine, classic cars) and traditional assets (stocks, bonds), its negative correlation with financial markets offers portfolio diversification benefits. Key price determinants include authenticity, medium, provenance, and auction house reputation. High transaction costs (25-35%) significantly impact net returns. Despite modest financial performance, art's aesthetic value and diversification potential make it valuable within broader investment portfolios, particularly for high-net-worth individuals who can absorb transaction costs and illiquidity risks.

Introduction

The art market has experienced remarkable growth over the past decades, driven by increasing prices and expanding global demand. Economic development, wealth accumulation, income inequality, and new art-buying audiences from developing economies have fuelled this expansion. Once dominated by European auction houses until the 1950s, the modern art market has evolved into a global marketplace with more than 30,000 auction houses worldwide that have auctioned works by over 150,000 artists during the past half-century.

The value of art and collectibles held by high-net-worth individuals is approximately USD 1.74 trillion (Deloitte and ArtTactic, 2019). Global art sales grew from USD 40 billion in 2009 to USD 67 billion in 2018, before slightly decreasing to USD 64 billion in 2019. The COVID-19 pandemic further reduced the global art auction value to USD 50 billion in 2020. Currently, the auction sector accounts for 42% of the value of global art sales, with dealers and galleries accounting for the remaining 58% (Art Basel and UBS, 2021).

The art market regularly establishes new price records. A striking example is Leonardo da Vinci's Salvator Mundi, which sold for USD 450.3 million at Christie's in November 2017 after 20 minutes of fierce bidding. This auction broke the previous world record for the most expensive painting sold, Interchange by Willem de Kooning, which had sold for USD 300 million just 14 months earlier. The return on Salvator Mundi was substantial, having previously been auctioned for a mere GBP 45 by Sotheby's London in 1958. Such exceptional prices and returns raise questions about whether art generally yields superior returns, what determines painting prices, the risk-return profile of art investments, and whether art belongs in a diversified investment portfolio.

This paper examines the financial performance of art using auction data spanning more than six decades. We analyse almost three million auction transactions of paintings and determine the risk-return characteristics of art as an investment across various dimensions, including price segments, art mediums, art movements, geographical markets, auction houses, artist nationalities, and artists' career cycles. We also compare art's performance to other investment classes, both alternative assets (like wine and classic cars) and traditional financial assets (stocks, bonds, and gold).

Data

Our analysis is based on auction data spanning six decades (1957-2016), covering sales by auction houses and art galleries worldwide. We analysed 2,874,652 auction records of "paintings" (including oil and acrylic paintings, watercolours and gouaches, and drawings) created by 155,156 artists. These auction records reveal that 78.5% of the auctioned paintings were sold (2,257,485 observations of successful auction sales), while the remainder was "bought in" (21.5%).

The average (median) hammer price in our dataset is approximately USD 47,000 (USD 4,000) in nominal terms. Artists born or working in France, the United Kingdom, the United States, Italy, Germany, Belgium, and the Netherlands make up more than 70% of the sample. The most represented art movements in terms of transaction volume are Baroque, Impressionism and Symbolism, and Fauvism and Expressionism.

Among the physical characteristics, the average painting measures 56 cm in height and 58 cm in width. Oil or acrylic paintings represent 65% of the sample, watercolours and gouaches 19%, and drawings 16%. Regarding authentication, 71% are signed, 35% are dated, and 13% are inscribed. There is doubt about authenticity for approximately 3% of the auctioned paintings.

In terms of provenance, approximately 14% of paintings contain pedigree information, 5% were part of exhibitions, about 5% were covered in art-related literature, and 2% were sold with certificates. The spring (May-June) and autumn (November-December) seasons each account for more than 25% of sales. Sotheby's and Christie's are the most prominent auction houses and together account for 32% of the worldwide auction sales over the past six decades.

Results

Price Determinants in the Art Market

Our analysis reveals key factors that influence art prices. Artworks with attribution uncertainties face substantial price discounts ranging from 50% to 80%, with the discount increasing with the "distance" from the original artist's work. For instance, a painting attributed to Rubens (whose attribution may still be in doubt) sells at a discount of 52% compared to an uncontested Rubens, while a Baroque painting from the "school" of Rubens sells at a 74% discount.

Authentication markers matter: Signed or dated paintings tend to sell at a premium (close to 20%) compared to paintings without any sign of authenticity. Medium also plays a crucial role, with oil and acrylic paintings, as well as watercolors and gouaches, priced 235% and 57% higher, respectively, than drawings. Prices increase with size, up to the point that the work becomes too large, as indicated by our statistical analysis. Subject matter also influences prices: Self-portraits, urbanscapes, seascapes, and still-lifes command premiums ranging from 8% to 20% over paintings for which the topic could not be identified. Conversely, portraits, studies, and nudes are traded at a discount.

Provenance information enhances value: Paintings with pedigree, exhibition, and literature information yield premiums of 36% to 56%, while paintings with certification information sell for an additional 13%. This underscores the importance of documented history in establishing an artwork's value. The reputation of the auction house affects prices, e.g. Sotheby's and Christie's London and New York branches sell artworks with the highest prices on average. The most expensive auctions occur during the spring (May-June) and autumn (November-December) seasons, reflecting the traditional auction calendar of the major houses.

Art Market Performance

The art market experienced significant fluctuations over our study period, with two notable boom periods: 1985-1990 and 2002-2007. During the first period, annual real prices increased by more than 20% between 1986 and 1990. Hiraki et al. (2009) attribute this first boom to the Japanese real estate and equity bubble which strongly affected international art prices, particularly for impressionist paintings. The second art market bubble coincided with the equity market increase that lasted until the Great Recession, which commenced in the second half of 2007.

Over the entire 60-year period, paintings appreciated at a nominal (real) annual return of 6.24% (2.49%). When we split our sample into two 30-year periods, we find dramatically different performance. During 1958-1986, art achieved an impressive nominal return of 11.05% annually. However, during 1987-2016, art generated disappointing nominal annual returns of 1.26% annually. This stark contrast highlights the changing dynamics of the art market over time and raises questions about its long-term investment potential.

Market Segmentation and Returns

The art market is not homogeneous and returns vary significantly across different market segments. Our analysis of price levels reveals a clear hierarchy in returns. The high-end art market (95th percentile) yields an annual real return of 2.23%, whereas the low-end market (5th percentile) yields only 1.46%. This disparity becomes more pronounced during boom periods.

Different art mediums show varying performance. Oil and acrylic paintings generate the highest annualized real return (3.39%), followed by watercolors and gouaches (2.50%) and drawings (2.10%). All three mediums follow similar price patterns from 1957 to 2000 but diverge afterward. From 2001 to 2007, the prices of oil paintings almost doubled, while watercolors increased by only 44%, and drawings remained rather flat. From 2008 to 2016, oil paintings experienced the steepest decline, suggesting higher volatility in this segment. The presence of specific colors on a painting may also affect prices. Ma, Noussair and Renneboog (2022) analyzed the location of color on paintings and performed lab experiments on color preferences in Europe, the US and China. They documented a color hierarchy in art: paintings with blue and red obtained the highest prices, followed by green, by orange and yellow, and finally by purple.

Art movements exhibit some of the most dramatic differences in returns. More recent art movements tend to generate substantially higher returns. Minimalism and Contemporary art show an impressive 12.88% annualized real return over the 60-year period. Pop Art (7.93%), Neoclassicism (7.48%), and Abstract Expressionism (5.28%) follow in the hierarchy. The Sharpe ratio (measuring return per unit of risk) is highest for Minimalism and Contemporary art (0.26), followed by Neoclassicism (0.20), Dada and Surrealism (0.20), and Cubism, Futurism, and Constructivism (0.19). Interestingly, during the financial crisis of 2008-2010, Pop Art and Abstract Expressionism artworks performed relatively well, continuing to yield positive annualized real returns (5.43% and 1.32%, respectively) while most other categories declined. This resilience suggests that certain art movements may provide better downside protection during economic downturns.

We also find price premiums for paintings created by artists from countries where specific art movements originated or gained prominence. For instance, Baroque artworks from the Low Countries (Belgium and the Netherlands) and Spain, French Impressionism and Neoclassicism, German Expressionism, Russian Constructivism, Belgian Surrealism, and American Pop Art all command higher prices relative to similar works of the same art school from other countries. This suggests a "home country advantage" that collectors recognize and are willing to pay for.

The geographical location of sales also influences returns. Paintings sold in the UK achieved the highest real returns (3.26%) during the period 1970-2016, while returns in the US and continental Europe were considerably lower. This may reflect the historical prominence of the London art market and its ability to attract high-quality consignments from around the world. Bonhams and Phillips, which focus primarily on modern and contemporary art, generated the highest real returns (4.14%) during 1970-2016. Sotheby's and Christie's follow with real annual returns of 2.9%. This finding underscores the increasing importance of modern and contemporary art in driving the market's overall performance. We find consistent differences between local markets (where the artist's nationality matches the country of sale) and international markets. Across different definitions of market segmentation, paintings sold in international auction markets significantly outperform those sold in local markets in terms of returns and Sharpe ratios. This suggests that the most valuable artworks tend to gravitate toward major international auction centers, particularly London and New York.

For individual artists, the timing of creation within their career affects returns. For deceased artists, we find that artworks created in the last phase of an artist's career (the final third) perform best in the secondary market, with an annualized real return of 4.08%, compared to 3.57% for middle-career works and 3.36% for early-career works. This pattern varies by art movement. For earlier movements where technical skill mattered more, artists' late-career works tend to appreciate more. For more recent movements where innovation and conceptual approaches are valued, early-career work often perform better. This aligns with Galenson's (2011) distinction between "experimental old masters" who work by trial and error and reach their peak later in life, and "conceptual innovators" who make breakthrough contributions early in their careers.

Art as an Investment: Comparisons and Portfolio Considerations

To understand art's investment characteristics fully, we compare its performance with other investment options. Among alternative investments, paintings (2.49% annual real return) outperform sculptures (1.11%) but lag behind the returns of classic cars (3.69%), violins (3.68%), white diamonds (5.23%), stamps (5.60%), and premier cru red Bordeaux wines (9.74%). In terms of Sharpe ratios, paintings (0.10) also underperform most other alternative investments, with white diamonds (0.51), classic cars (0.39), red Bordeaux wines (0.38), and stamps (0.27) offering superior risk-adjusted returns.

Compared to traditional financial assets, the art market for paintings generally underperforms stocks, bonds, and gold in terms of both returns and Sharpe ratios. The S&P 500 achieved an annual real return of 7.84% with a Sharpe ratio of 0.42 (since 1957), while global government bonds returned 2.98% with a Sharpe ratio of 0.30. Gold offered a real return of 4.25% with a Sharpe ratio of 0.15. Art's Sharpe ratio of 0.10, however, exceeds that of commodities (0.03) and US housing (-0.03). Interestingly, art's performance compared to other assets varies considerably across time periods. In the first 30 years of our sample (1958-1986), paintings achieved a real return of 6.23%, comparable to stocks (S&P 500: 6.71%, FTSE 100: 6.68%) and gold (6.93%). During this period, art significantly outperformed bonds, commodities, and US housing in terms of Sharpe ratios. However, in the subsequent 30 years (1987-2016), art underperformed equity and (corporate and government) bonds.

Despite the relatively modest performance of art as a standalone investment, its negative correlation with stocks and bonds suggests potential diversification benefits within a broader investment portfolio. A portfolio optimization analysis shows that including paintings in an investment universe comprising various financial assets improves the Sharpe ratio compared to portfolios that exclude art. For our entire sample period, the optimal portfolio comprising eight asset classes (S&P 500 stocks, global government bonds, corporate bonds, treasury bills, gold, US housing, commodities, and paintings) would allocate 9.5% to paintings.

The Challenge of Transaction Costs

The returns discussed above are based on raw returns and do not account for transaction costs, which vary substantially across asset classes. For art, these costs are particularly high: auction houses charge a "premium" to the buyer and a "commission" to the seller, totaling approximately 25-35% of the hammer price for a ‘round trip’ transaction (purchase followed by a sale). Additional costs related to insurance, storage, and taxes further reduce net returns.

The art market is also notably opaque and illiquid compared to financial markets. Lack of short selling means prices may be slow to incorporate negative information and selling a painting can take time as suitable auctions may not be immediately available. The market is fragmented across thousands of intermediaries worldwide and largely unregulated. Concerns about authenticity and the occasional discovery of fakes and forgeries create additional risks.

Auction houses provide specific services to address these market inefficiencies, including authenticating artworks, researching provenance, marketing, and providing insurance against forgeries. These services help create trust in this unregulated market, partially justifying the high transaction costs.

Beyond these market characteristics, art differs from financial assets in serving multiple purposes for investors. It combines investment characteristics with consumption features (the aesthetic pleasure of ownership) and sometimes status signaling (enhancing social status through art ownership). These various functions contribute to heterogeneity in beliefs about art values, which is further influenced by changes in taste, sentiment and fads, and financial shocks to equity markets and personal wealth distribution.

Conclusion

This comprehensive analysis of the art market's financial performance over six decades reveals both opportunities and challenges for art as an investment. Overall, paintings have appreciated at a moderate real annual return of 2.49% (6.24% in nominal terms) over our long sample period of six decades. However, this seemingly modest average masks substantial variation across market segments, time periods, and individual characteristics of artworks.

The highest returns in the art market are found in the high-end segment, in oil and acrylic paintings rather than works on paper, in more recent art movements (particularly Minimalism and Contemporary art and Pop Art), in sales through major auction houses in London and New York, and in works created during the later stages of an artist's career. These findings suggest that careful selection based on these characteristics could potentially enhance investment returns.

The significant transaction costs associated with art investments—typically around 25-35% for a round-trip transaction—further erode net returns and should be carefully considered by potential investors. These costs reflect the unique challenges of the art market, including issues of authenticity, provenance, and the need for specialized knowledge.

Art's value extends beyond pure financial returns. For many collectors, the aesthetic enjoyment, cultural significance, and social status conferred by art ownership provide substantial non-monetary benefits. These "emotional dividends" may help justify investments in art despite its relatively modest financial performance.

For investors considering entering the art market, our findings suggest several strategies. Focus on the high-end market segment where returns have historically been stronger. Consider more recent art movements, particularly if investing in the long term. Pay attention to provenance, as it significantly affects both value and potential appreciation. Be aware of the substantial transaction costs and illiquidity risks. Finally, view art primarily as a diversification tool within a broader investment portfolio rather than as a standalone investment vehicle.

In conclusion, while art may not offer superior financial returns compared to many other investment options, its unique characteristics, aesthetic value, and diversification benefits make it a potentially valuable component of a well-diversified investment portfolio, particularly for high-net-worth individuals who can absorb the high transaction costs and illiquidity risks. The art of investing in art lies not just in selecting pieces with appreciation potential, but in balancing financial considerations with the intangible rewards of collecting.

One may expect that the art prices always go up, but this is the effect of information salience – only new price records are extensively reported by the media. Over the past decade, the evolution of art prices has been modest. One has witnessed the arrival of digital art (in the form of non-fungible tokens or NFTs) of which only digital collectibles (such as cryptopunks) substantially increased in prices. Shocks in the crypto-currency market and the fraudulent bankruptcy of some crypto-currency trading platforms (e.g. FTX) have tarnished the digital art market and it is doubtful whether the NFT market will take off or recover.

Predicting any future evolution is always difficult, but we know that the art market is affected by the evolution of income inequality and the stock market evolution. Rising income inequality correlates with rising art prices, as a concentration of wealth spills over to the art market (Goetzmann et al., 2011). An increase in equity market returns is followed by an increase in art market prices with a delay of 6 months to a year. Over the past 25 years, new art buying audiences have affected demand. For example, around the turn of the millennium, wealthy Russians entered the art market which increased prices of western art and led to increased demand for Russian imperial art and early communist (Leninist) art (Renneboog and Spaenjers, 2010). From 2005, Chinese interest in western art increased but gradually the demand for Chinese traditional and contemporary art also augmented (Chen et al. 2025), to the extent that the 3^rd and 4^th largest auction houses (in terms of total value turnover) are Chinese (China Guardian and Beijing Poly International). It is therefore expected that the demand for local art – at the expense of western art of which the sales have dominated the art market to date - will further augment in countries such as China and India, depending on the development of a wealthy top and middle class. It is also observed that the tastes of younger buyers are more geared towards modernist and contemporary art styles, which is already reflected in higher returns.

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