Art as an Alternative Investment

CHAPTER 1: INTRODUCTION1

Introduction1

Background of the Study1

The New Frontier: Art as an Investment1

Transforming Art into Investments2

The Structure of the Art Market2

Purpose statement4

Research Questions4

Dissertation Organization4

CHAPTER 2: LITERATURE REVIEW6

Background of the Literature Review6

Aims and Objectives of Literature Review7

Reasons to Invest in Alternative Assets7

Market Trend Data and Analysis9

Market Risk Disclosure Rules11

Theories and Models11

Theory11

The Simulation Model12

Summary of the Literature Review12

CHAPTER 3: PROCESS OF RESEARCH14

The art market is very different from financial markets14

How is a financial market organized?14

The Five Characteristics of Market Efficient14

Indices and quotations15

The Regulation of Markets16

Financial Offenses16

The Difficult Art of Placement Assessment17

What can we assess?17

Three assessment methods17

CHAPTER 4: PRESENTATION OF FINDINGS19

The Special Rules of Art Market19

Structure of the art market19

Features of the Art Market20

Atomicity and the monopolist seller20

Heterogeneity and Scalability21

Information on the market22

Asymmetry22

The Movement of Information23

Useless information25

Collusion of players and lack of regulation26

Liquidity27

Results27

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS29

Discussion of Methods and Results29

Limits Fixed by the Available Data29

Oblivion Relating to Transaction Costs and Taxation30

Benchmark Index and Tradable Index30

General Conclusions Based on Methods31

Investing in Art?32

The Need for New Models32

On Insurmountable Resistances32

An Inefficient Market33

The Poetry of Irreducible Art33

REFERENCES35

APPENDICES38

Appendix 138

Appendix 239

Interview with one of the Deallers Silvia from Haylicon gallery London40

Why should one invest in art? Are the reasons that there is stability of this market and the fact that art is tangible?40

Are their any rules for successfully investment in Art40

Is there any management culture in the galleries/auction houses/ art dealers/ collector?41

Interview with anonymous dealer from Sotheby's auction London.41

How did the Art market change over the last 10 years?41

And which areas of the world come the present main buyers from?41

Is it important to know the “biography” of an artwork?41

CHAPTER 1: INTRODUCTION

Introduction

Art as investment is a risk and it depends on many irrational factors. The present study examines the relevance of art investment and raises the question of whether “investing” in art can be understood in the same sense as investing in stock market.

Background of the Study

The New Frontier: Art as an Investment

At various points in the last few decades, the art market has been held up by the media as an exciting place in which to make money. Although there have been many examples of high prices from the sale of art, this seemed to be a particularly strange place for financial investment, because it was and still is a market with a great deal of secrecy. Price estimates come from auction sales, which give publicly available data, but these represent only about half of the market (Pesando & Shum 2007, p.80). Private sales comprise the rest of the market. Art is typically sold for the first time by a gallery, constituting the primary market, and later (secondary) sales can be either by gallerists or at auction. Galleries also help to broker private sales of work by the artists they represent or specialize in, while auction houses have so-called “private treaty sales.” The reasons for this type of secrecy vary, but one key point is to accommodate some of the expectations of wealthy clients, who do not necessarily want the world to know what ...