Abstract
The possibility of investing in art has recently generated much interest among investors worldwide. In recent years structured solutions offered by art funds as well as a number of smaller boutique funds that offer investors the possibility of investing in a diversified art portfolio solely for financial gain have come into existence. This article examines return patterns that an art investment portfolio would have generated, taking a more conservative approach to examining the financial gains that artworks have exhibited historically. The analysis includes transaction costs, which are considerable in the art market, although in practice art funds are able to negotiate these costs. The results in this article show that art's low correlation with other asset classes offer diversification benefits from holding art in an investment portfolio. Optimal portfolio allocations using historical returns make a case for investors to consider art as an attractive, albeit small addition to their investment strategy.
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