On returns and risks in art auction markets 1

We study price determinants and investment performance of art using a vast sample of transactions worldwide over the past 60 years. We focus on paintings and drawings that have appreciated at a real (nominal) annual return of 2.49% (6.24%). Higher art returns are reached for paintings at the high end of the price distribution, oil paintings, more recent art movements, and transactions by reputable auction houses. The risk–return trade-off of paintings underperforms that of other passion investments. Paintings’ Sharpe ratios are below those of stocks, bonds, and gold but outperform those of commodities and real estate. Investments in paintings enter the optimal investment portfolio.