Art as an Investment and the Underperformance of Masterpieces

Art as an Investment and the Underperformance of Masterpieces By JIANPING MEI AND MICHAEL MOSES* to those traditional financial assets, such as stocks and bonds. The larger data set also permits us to test two propotions frequently advanced by art dealers and economists. The first one states that art investors should buy only the top works established artists (masterpieces) or buy the most expenve artwork they can afford. The empirical evidence on the return performance masterpieces is mixed. Pesando (1993) presented strong evidence underperformance while Goetzmann (1996) found no such evidence. Our study will extend their analys with a new testing procedure based on repeated-sales regreson (RSR). The second propotion states that prices realized for identical paintings at different locations at the same time should be the same. Pesando (1993) compared prices alternate copies the same prints sold at Sotheby’s and Christie’s in New York and found substantial evidence violation the “law one price” during the 1977–1992 period. While no art piece in our data has ever been sold multaneously in both auction houses, we will conduct a test the “law one price” by examining return differentials for artworks sold at different auction houses over much longer time periods. If there is systematic pricing bias from one American Economic Review American Economic Association

Art as an Investment and the Underperformance of Masterpieces

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