Profitable and losing art-investments: a statistical analysis of the profitability

Abstract

The current article sets out to prove the existence of unconditional investment potential in objects of art. Only 14.8 % of monuments do not bring profit to their owners from resale, against a backdrop of an overwhelming share of works (85.2 %) that guarantee financial success to their collectors. It is on such “halves” that the world art market disintegrates, allowing us to look objectively and for the first time empirically to study aggregates previously not open to analysis: Profitable Repeat Sales and Unprofitable Repeat Sales. The antagonistic comparison of art investments presented in the study makes it possible to reveal a real paradox in the monuments market: the practically functional dependence between prices (first and later) on art in the rating of unprofitable works. How can a work sold at a higher price than it was purchased be on a list of unprofitable artistic value? We suggest the answer is in the collector’s losses due to transaction costs, which leads to additional analysis in the field of specific risks for this market. Our main conclusion is that confirmation of constant profitability of art (the nature of the connection is almost functional) given the free action of one variable, risky transactions; for accuracy of forecasting such transactions, scholars depend upon the probability of the appearance of an absolutely correct means for preserving and multiplying capital. Refs 18. Tables 13.