Art Market Returns: Misgivings and Certainties

Paintings are − among other things − financial assets. The most basic piece of information regarding a financial asset is probably its return, or, more appropriately, the potential return that it can offer. Not surprisingly, many scholars have devoted a fair amount of effort to explore how to compute returns for such assets. Unfortunately, after more than forty years of efforts, many fundamental issues regarding returns remain unsolved. In this paper we address two issues that somehow have been overlooked by previous research: (i) how the choice of metric influences the computation of estimated returns; and (ii) the importance of taking into consideration the error propagation in the computation of these estimates. We conclude that estimating returns for paintings is far more difficult than previously believed; there is no unique or best solution; and perhaps more relevant, the errors associated with these estimates are quite substantial.