From Gerd Kommer and Tobias Jerschensky
The development of today's financial industry probably began in the Bronze Age around 3,000 years ago. Since then, every day somewhere in the world, financial salespeople have been trying to convince the rest of humanity that they have found “a new, particularly attractive investment” that smart, profit-oriented people absolutely have to invest in. “Art as an investment” has recently fallen into this category. [1].
To illustrate this, here are six short quotes from the current marketing of art brokers and financial service providers who want to make money with art investments from private investors:
- "Art is one of the oldest and, at the same time, most stable assets of all. Wealthy people all over the world have always secured part of their assets in this special asset. Art - independent of the capital markets - shows a low-fluctuation value development. The return: an average annual performance of 10.95%, proven for over 55 years." – Art broker website Fine Art Invest Group AG, Switzerland – accessed on May 15, 2025
- “The contemporary art market has performed extremely well over the last 40 years, outperforming the S&P 500 Index by 240% since 1986. Over the years it has ridden out bumps in the stock market and shown that it doesn’t follow the movements of other types of assets.” [2] Art fund provider website Mintus, Great Britain - website, accessed May 15, 2025
- "Art as an investment: Art beats prices. [...] The global art market has proven to be stable over decades and is less susceptible to economic crises." – website of Fee-based advice Wikifinia, Austria – accessed on May 15, 2025
- "Art has proven itself as an investment. Hardly any other type of investment has managed to multiply capital so sustainably in the long term." – Art broker website Art House Artes, Berlin – accessed on May 14, 2025
- "Art is booming - and not just in the upper price segment. Excellent returns can also be achieved on works under 20,000 euros." - Marketing publication by the art fair organizer ArtMuc (Munich)
- “Art remains a top-performing asset, even in times of financial market volatility.” [3] – Marketing email from the British art agent Maddox dated May 16, 2025 to one of the authors
In the sales-related publications of such companies on the supposed attractiveness of art as an investment, the following arguments in particular are given:
(a) Art investments produce attractive returns that exceed the long-term returns of stocks.
(b) Art investments have a high level of value stability. Their return fluctuates less than that of the stock market. Art prices have often failed to fall or even risen during some severe global stock market declines over the past 25 years.
(c) Art has a low correlation with the stock market and other established asset classes. Therefore, art works well as a diversifier for stocks and bonds.
(d) Although art - similar to real estate - is a very illiquid form of investment, it is precisely this illiquidity that, as an illiquidity premium, is the reason for the good returns on art.
(e) Art has tax advantages (in Germany).
(f) Art provides an “emotional dividend” that traditional investments do not.
Viewed this way, one must get the impression that a private investor who forgoes art in his asset portfolio - at least to a limited extent - is a fool.
The reality of art from an investment perspective
Unfortunately, the facts look less rosy, at least if one understands facts as the majority opinion in science on the return and risk of the art asset class and a correct analysis of the existing historical return data material.
Let's start with the science.
Compared to the asset classes of stocks, bonds, real estate, precious metals and raw materials (and financial products based on these asset classes), there are few scientific studies on the long-term return-risk combination of art. The main causes are a lack of reliable historical return data on art, high methodological hurdles in the construction of art indices and the microscopic economic importance of art in the wealth creation of private households and institutional investors.
For reasons of space, we will not elaborate here on the reasons for the lack of meaningful high-quality data series on the long-term returns of the art asset class. However, this deficiency does not prevent many art brokers and providers of art investments from publishing in their marketing material questionably high return figures for art and historical return comparisons between art and stocks in which the stock returns are “remarkably” low. We describe a concrete example below.
Despite the aforementioned lack of quality data on the long-term returns of the art asset class, a small group of scholars have published useful empirical studies on the return and risk of art - most often on painting art - particularly in the last two decades. The consensus in these scientific analyzes is quite clear and it goes like this:
At the end of this blog post, we list eleven academic articles based on empirical analyzes of the historical returns on visual art. Only one of the eleven (Levy/Nicolas 2024) reports an attractive risk-return combination in the painting sector. We have linked the source for all eleven articles so that our readers can easily read the abstracts or the entire article if they want to see for themselves.
The essay by Li/Ma/Renneboog (2022) is particularly worth reading. These scientists calculate an inflation-adjusted return on art paintings over the 58 years from 1959 to 2016 of 1.22% p.a. (in USD) - excluding costs and taxes. This compares to the real return of the S&P 500 Index of 6.70% p.a. over this period.
This brings us to the first interim conclusion: From a scientific perspective, painting art represents at best a moderately attractive investment fund, especially after taking into account the exorbitant additional costs of investing, which are quantified below, and only if the investor can invest in a sufficiently large sample of paintings in the upper price segment.
Art returns if you look closer
But this simple statement is not nuanced enough. It's worth digging a little deeper.
How do some art brokers and other art service providers go about winning customers with the – as we will show – false idea that “painting art is a structurally interesting investment”? We give the answer using a small case study.
The British art broker Maddox publishes a 43-page “Contemporary Art Investment Guide” in PDF format on its website, the current edition of which we downloaded on May 15, 2025. The document is intended to show its readers using many figures and data that wealthy private investors and institutional investors all over the world are increasingly discovering fine art as an attractive investment class and that art investments are financially very lucrative. On page 18 of the edition of the guide we downloaded you can find the return graphic shown in Figure 1.
Figure 1: Comparison of returns of a painting index with two stock indices for the period 2000 to 2024 (25 years) - art broker Maddox
► Source: “Maddox Contemporary Art Investment Guide”, downloaded from www.maddoxgallery.com on May 15, 2025. ► According to the Artnet website, the “Artnet Contemporary Art Index” reflects the price return of the “top 50 contemporary artists” from the “fine art” sector. ► Without costs and taxes.
At first glance, a private investor would find what this graphic shows extremely astonishing: Contemporary paintings have outperformed the American and British stock markets by orders of magnitude over the past 24 years (end of 2000 to end of 2024).
Because we found this idea surprising, we reviewed the return data in the graph for the S&P Index and the FTSE 100 Index and compare them in Table 1 with the return data derived from the Maddox graph in Figure 1.
Table 1: Comparative review of stock returns reported in the Maddox Art Investment Guide (see Figure 1)
► Data in column B according to the “Maddox Contemporary Art Investment Guide” (see information on Figure 1). ► Source for data in column C: Dimensional Fund Advisors. ► Without costs and taxes.
The Maddox Investment Guide does not provide any information about the currency in which the return data in Figure 1 is calculated, but as Maddox is a British art broker and the Artnet Contemporary Art Index According to the Artnet website, it is originally calculated in GBP, we assume that all data in Figure 1, with the exception of the inflation rate (CPI), is denominated in British pounds. However, if the return data were in USD, that would not change the basic picture significantly. (The CPI data can only refer to the USA due to its level and the source indicated in the graphic - US Bureau of Labor Statistics.)
The following conclusions can be drawn:
- The Maddox Investment Guide lists returns for stocks that are 3.5 percentage points too low. Our first suspicion for this strange circumstance was that Maddox mistakenly or intentionally used pure price indices (indices excluding dividends) for the S&P 500 and the FTSE 100, but even for that the Maddox numbers are still too small.
- The Maddox figure starts at the end of 2000 and shows the 24 years until the end of 2024. The choice of starting year seems striking since the Artnet indices go back to 1978. The choice of starting year is probably not a pure coincidence, as the years 2001 and 2002 were two disastrous years for the American and British (as well as the global) stock market due to the bursting of the dot-com bubble. If you had chosen the maximum period since 1978 (46 years) or, for example, the last 30 years, 20 years or 10 years in the graphic, the average stock returns would have been significantly higher in each case.
- The Maddox data does not include costs - neither buying/selling costs nor ongoing costs. The average transaction costs when selling a painting through a broker or auction house range between 10% and 35%. How these costs are divided between seller and buyer is case-specific. [4] According to the literature, the running costs (insurance, transport, maintenance) for valuable paintings are on average around 1.5% p.a. On the other hand, the transaction costs for stocks are close to zero, the running costs are only around 0.15% p.a. in the case of conventional stock ETFs and even lower in the case of individual stocks. Ergo: If the respective cost burdens for art and stocks were taken into account in Table 1, the annualized return for art would fall by around 2.5 percentage points, while that for stocks in column C would only fall by 0.15 percentage points.
When researching for this blog post, we noticed strange, incomprehensibly high returns on art and comparative returns on stocks that were too low on a number of art brokers' websites and in their marketing material - see the first three quotes at the beginning of this blog post as an example.
Anyone who googles the topic of “returns on art” on the Internet will come across many “curious” calculations and figures in the publications of art brokers. (A return graphic very similar to Figure 1 with also strangely low stock market returns can be found, for example, on the website of the British art data information service Artprice - link here.)
More wake-up calls when investing in art
But the disillusionment with the supposedly attractive returns on art paintings compared to stocks does not end there. Regardless of the pure question of returns, the practical implementation of investing in art raises a number of other hurdles that are not mentioned in the art brokers' marketing material.
(1) First of all, you cannot invest in an art index, unlike an index of stocks, bonds, precious metals, crypto assets or raw materials. This is significant because the average individual work of art has dramatically higher volatility in value than an art index that is diversified across hundreds of artists and thousands of works of art. Anyone who draws conclusions about the likely price volatility of an individual work of art from an art index is making a serious mistake. It goes without saying that 95% of all art investors are unable to finance a broadly diversified art portfolio for financial reasons alone.
(2) No art index is truly representative and therefore objective of the underlying market, as all indices suffer severely from “selection bias” problems. For example, most art indices only consider auction sales, not private sales through brokers or brokerless transactions between two investors. Auction sales represent only a minority of all transactions outside of “superstar art.” [5] Another distorting bias is that expensive art is greatly overrepresented in probably all art indices relative to its actual importance and frequency on the market. Thirdly, we can assume quite confidently that works of art that have increased in value are statistically bought/sold more frequently than works of art that have stagnated or fallen in value. This phenomenon also distorts the index return upwards, because by design, indices only reflect the price development of works of art that were traded during the observation period. The investment bank Morgan Stanley writes: “Most art indices don’t include work that fails to sell.” (Speaking of “most art indices…” we are not aware of any art index that contains price data for non-traded art.) Comparable problems do not exist with capital market indices.
(3) Within the art of painting, contemporary art has been more profitable over the last 25 years than art from earlier eras, e.g. B. Middle Ages, Renaissance, 17th century, 18th century, 19th century, modern art from 1900 to 1950 and art other era or style definitions. But no one could have known that 25 years ago. Which type of fine art painting will have the best returns in the next 25 years probably cannot be determined from the past. Anyone who presents art returns and only shows indices for “contemporary painting art” (art that was created in the last 30 to 50 years), without pointing out the significantly worse returns from other eras and styles, is acting unfairly and practicing this Look back bias for manipulative purposes.
(4) Almost all known art indices are created and operated by art brokers or auction houses, i.e. by parties who obviously have conflicts of interest. Some indices even include prices communicated by the respective artists themselves to the index creator. In terms of the trustworthiness of this data, this is not a good starting point.
(5) An individual work of art is generally highly illiquid, typically even more illiquid than a residential property. Therefore, it will rarely be able to be sold at the estimated “market price” in the short term without a noticeable discount.
(6) Anyone who wants to invest in art economically successfully must have specific art expertise in order to be able to assess the appropriateness of offer prices and to avoid manipulation of the so-called “provenance”. [6] to recognize and not to overlook suspicious signs of forgeries, stolen art or art that is being traded for money laundering purposes. Such problems and risks hardly exist, if at all, with listed capital market investments.
An opaque market without a supervisory authority
Art is an unregulated market. Because of this and because it is highly non-transparent due to its very own characteristics, anyone can claim and publish anything in this market and that is exactly what happens. Not only is the art market unregulated, it is also very small. The global transaction volume in the art market is only around $70 billion per year – and the trend is falling. That is a paltry 0.06% of the transaction volume of the global stock market (even excluding the markets for bonds, foreign exchange, raw materials, precious metals, derivatives). Amazon alone generates around ten times as much annual sales as the entire global art market combined. The tiny size of the art market is also due to the fact that it is estimated that over 95% of all high-end art is in museums, churches and other public institutions and is therefore almost never traded on the art market. The smaller and narrower a market is, the more susceptible it is to manipulation.
Anyone who takes a closer look at the financial side of the art market will soon be able to understand what we believe is a kind of consensus within the art scene: “High-end art is one of the most manipulated markets in the world” (Schrager 2013). In the appendix of this blog post we list some YouTube videos that give a first impression of this “problematic side” of the art market.
Finally, we would like to quote the pleasantly sober and honest statement of a Berlin art broker in an interview in Spiegel from 2023 (Müller/Späth 2023):
Spiegel Magazine: “Even if you are reluctant to talk about it: What is the average long-term return on art?”
Diandra Donecker [art broker]: "If you really want to: Viewed over 20 years [cumulative, GK], it's probably only in the single-digit range. The value of most works of art doesn't change during this period."
Conclusion
From a purely financial perspective, art paintings represent an unattractive set of investment characteristics for normal private households: (a) the statistical returns on art are low - especially after costs, (b) the liquidity of art investments is low, (c) the short and medium-term risk of fluctuation in the value of the average individual painting is very high (not only, but above all, because diversification within an art portfolio is not realistically achievable for normal wealthy households). In addition, there are some “special art risks”, such as the “provenance problem” and the risk of being exposed to forgeries, stolen art or art contaminated by money laundering.
Art indices as indicators of return and risk for the art investment fund are probably distorted and generally less reliable than indices in the capital or real estate market.
Art brokers seem to have a tendency to be very creative when comparing returns between art indices and stock indices, for example by omitting dividends from stock indices.
Anyone who spends or wants to spend significant sums of money on art should do so primarily out of pure enjoyment of art, out of intrinsic motivation, and not in the unlikely hope of achieving a sustainably attractive return-risk combination with this expenditure.
Endnotes
[1] This blog post about art is exclusively about art from a return perspective. Non-financial aspects of art, which are of course equally important or more important, are not discussed due to space limitations.
[2] The contemporary art market has performed very well over the last 40 years, outperforming the S&P 500 Index by 240% since 1986. Over the years, it has weathered stock market fluctuations and shown that it does not follow the movements of other types of assets.
[3] Art remains one of the most profitable asset classes - even in times of volatile financial markets.
[4] The percentage transaction costs tend to fall as the price of the painting increases.
[5] Specific manifestations of selection bias are Look back bias, also Hindsight bias called, and Survivorship bias.
[6] The “provenance” (a technical term in art jargon) is, so to speak, the CV of a work of art, i.e. the chronological list of all historical previous owners and transaction prices, as well as the written evidence that proves this chronology and price sequence.
literature
Baumol, William (1986): “Unnatural Value: Or Art Investment as Floating Crap Game”; In: The American Economic Review; Vol. 76, No. 2, May, 1986; Internet reference here
Dimson, Elroy/Christophe Spaenjers (2014): “Investing in emotional assets”; In: Financial Analysts Journal; 1 March 2014; Volume 70, Issue 2; Internet reference here
Dimson, Elroy/Kuntara Pukthuanthong/Blair Vorsatz (2023): “Convenience Yields of Collectibles”; November 1, 2023; Social Sciences Research Network SSRN; Internet reference here
Dimson, Elroy/Paul Marsh/Mike Staunton, Mike (2018): “Credit Suisse Investment Returns Yearbook 2018” – long version; Credit Suisse Research Institute
Korteweg, Arthur et al. (2016): "Does It Pay to Invest in Art? A Selection-Corrected Returns Perspective"; in: Review of Financial Studies, Volume 29; No. 4; 2016; Internet reference here
Leonova, Liudmila/Anna Vodopyanova (2016): “Empirical analysis of investments on the fine art market”; 03 Dec. 2016; Social Sciences Research Network SSRN; Internet reference here
Levy, Simon/Maxime Nicolas (2024): “Modern Portfolio Diversification with Arte-Blue Chip Index”; 1 Nov 2024; Social Sciences Research Network SSRN; Internet reference here
Li, Yuexin /Marshall Xiaoyin Ma/Luc Renneboog (2022): “Pricing Art and the Art of Pricing: On Returns and Risk in Art Auction Markets”; In: European Financial Management; Volume 28, Issue 5; Nov 2022; Internet reference here
Mei, Jiangping/Michael Moses (2002): “Art as an Investment and the Underperformance of Masterpieces”; In: The American Economic Review; Vol. 92, No. 5, Dec. 2002; Internet reference here
Renneboog, Luc/Christophe Spaenjers (2013): “Buying Beauty: On Prices and Returns in the Art Market”; In: Management Science, Vol. 59, No. 1, 2013; Internet reference here
Ulibarri, Carlos (2009): “Perpetual options: revisiting historical returns on paintings”; In: Journal of Cultural Economics; Vol. 33, No. 2; 2009; Internet reference here
Media article
Müller, Martin/Sebastian Späth (2023): “If someone earns their money with a table dance bar, it’s none of my business”; Interview with auction house boss Donecker in Spiegel; Der Spiegel issue 8/2023; Internet reference here
Schrager, Allison (2013): “High-end art is one of the most manipulated markets in the world”; Quartz Magazine; July 11, 2013; Internet reference here
A selection of critical videos on the art market
All following videos are in English.
“The Art Market is a Scam (And Rich People Run It)” – YouTube video, link here
“You Won’t Make Money From Buying Art, But Rich People Can And Do” – YouTube video, link here
“Adam Ruins Everything – How the Fine Art Market is a Scam” – YouTube video, link here
“Is the Art Market Tanking?” – YouTube video, link here
“Art Market Collapse?” – YouTube video, link here
“[The US company] ‘Masterworks’: A Terrible Investment” – YouTube video, link here
“Washing dirty moey with fine art – Inside the art market’s dark secrets” – YouTube video, link here
“The Cunning Genius Who Fooled The Art World” – YouTube video, link here
“The Great Contemporary Art Bubble – Fake Prices, Real Greed” – YouTube video, link here