Is investment in art competitive to other investments: Case of Poland?

The financial market situation causes investors to look for alternative investments to diversify their portfolio. Relatively new approach toward investing concerns pieces of art as investment instruments or collateral. The problems of artworks as investment opportunities for investors is discussed in literature. On the basis of more than a million auction trades that took place in the period 1900 – 2007 for 10,100 artists, Renneboog and Spaenjers (2013) show that return for art is only 4% per year while stocks yield a return over 6.5% but art investment is more profitable than government bonds and gold, which yield returns 2 – 3%, and comparable to corporate bonds that gave also 4% average annual return. However risk measured by standard deviation is the higher for gold (more than 24%), than for art (10%), equities (16.5%), government bonds (less than 11%) and corporate bonds (9.5 %). Regardless investment in art seems to be comparatively safe as an asset class that can serve as hedging instrument against inflation and create possibility to diverse the investment portfolio since art is not correlated with equities or bonds but associated with tangible assets such as gold or commodities.

The art market in Poland is quite undeveloped since it has been developing since 1989 when the transformation of economic system began. Last two decades was characterized by changes in the income distribution and the structure of consumption, that caused the increased interest in art market in the Polish society. Therefore to analyze the art market situation, especially in terms of potential investment, the art price index of Polish paintings is needed. The limited scale of the art market in Poland does not allow one to apply the repeated sale approach for the price index construction, thus it is necessary to construct the hedonic art price index. Such an index can be evaluated by the method of a two-stage hedonic regression, which is a method for estimating an approximate value of a work of art adjusting the average price of the artist’s works for the qualitative characteristics which are incorporated into the hedonic model.

The aim of the paper is evaluation of the art price index for selected Polish painters whose paintings were sold at auctions held by auction houses and foundations in the years 2007 – 2010. The indexes calculated for investigated years are compared to returns from “standard” financial instruments.