Trends in the Art Market, Creating Financial Instrument Using Art as an Asset Base

Chapter 1 - Introduction

1.1 Background

The buyers at the auction house to withstand the mortgage crisis and fears the credit crunch, with sales in the art market continues to go beyond all expectations. More recently, economists such as Mei and Moses (2005) and Campbell (2005) touted the ability of art to provide diversification benefits due to its low correlation with other more traditional investments like stocks, bonds and cash. This belief ultimately led to the rebirth of the day contemporary art investment fund in 2001, and that a price is "speculative, to be made from the art market." Chapter 2 traces the idea of art as an investment tool since the beginning of the twentieth century to today. In 2007, significant changes occurred in the art collections of the investment with the introduction of the first art hedge fund. Art Trading Fund was the first investment fund to provide insurance against the art market, using equity derivatives.

1.2 Scope of Work

Art Trading Fund becomes the first step in creating a cover for the arts. However, the "real" coverage for art, require the creation of art derived as primary. Application of a hedging strategy for the arts in liquidity and regulation is necessary, and to encourage investment in the future. In chapter 3, I propose that art total return swap, which allow investors to protect themselves against fluctuations in the art market. In this case, I make a comparison as to the ownership and credit derivatives markets. The real estate market of derivatives is a very useful comparison because, like art, is a heterogeneous product market is extremely illiquid and inefficient. Therefore, I modeled the art derived from the real estate derivatives. credit derivatives market provides an indication of the potential derivatives in the arts through a proposal to introduce an art credit default swap.

Given the ownership and credit derivatives markets has two important implications.

First, it allows us to recognize many parallels between the property and asset classes in the art. It also shows the second case, where the derivatives can be used to reduce risks in the art market. The prospects for the creation of derivative art very realistic.

The successful creation of products of art depends on the evolution of reliable indicators of the art as described in Chapter 4. Number of indices of art have been developed, however, trade is not possible for three main reasons. First, not enough people who are interested or willing to trade this type of index. Secondly, the indices of the art low use of the methodology, provide a clear description of the performance.

Thirdly, they suffer from a number of fundamental problems, in particular, that all indices are based on art auctions, but not private sales. Auction prices, which are available do not include transaction costs such as taxes, insurance, maintenance, legal fees and auction, which may vary significantly based on the works of art. In addition, the indices of art can not be ...