Can art can be considered a safe haven during volatile times or a hedging option in general? we analyze long-term art auction sales data focusing on and around financial crisis periods in a volatile emerging market.
Investors are always looking for potential instruments; and nowadays, we see more and more discussions about art as an investment, mainly in the US and European markets. Within the past few decades, the increase in the number of art investment funds provides some evidence that the demand for art is on the increase. The increase in demand for art is also reflected in the sales up to $67.4 billion in 2018. This is a 6% increase from the previous year with 39.8 million transactions according to the UBS Global Art Report (2019), where 46% of these transactions are through auction markets.
One reason for this renewed interest in art is the increase in total worldwide wealth. Wealthy individuals could be interested in art for many reasons such as investment, diversification, status, pleasure, or an emotional attachment. Since art is not a liquid asset, how investors view art as an investment option is an interesting question to analyze. For instance, previous studies show that investors see gold as a safe haven under extreme market conditions, and a hedge against stocks on average (Baur and Lucey, 2010). It could very well be the case that investors see art works as secure places to store their wealth similar to precious metals. Perhaps art is an investment option that can be used as a safe haven during volatile times or a hedge in portfolio diversification.
Our auction data contains only paintings, sculpture and mixed media (Original Author technic) 80 percent of which are painted by Ukrainian artists. Other nationalities, mainly European, constitute the rest of the sample. For the paintings for which century data is available, more than 85% were painted during the twentieth century. There are also a few paintings from the seventeenth and eighteenth centuries. Most of the paintings in the sample are either landscapes (44%), or figurative paintings (21%). However, there are modern paintings (2%), abstracts (6%), or portraits (9%) as well.
Investors have difficulty considering art as a hedging alternative during periods of extreme volatility when the economy contracts at a crisis period. Hence, at slow contractions, art investment is good for diversification, and decreasing risk with its low correlation.