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Art investment as a portfolio diversification strategy in South Africa

Art has been suggested as a good way to diversify investment portfolios during times of financial uncertainty. The argument is that art exhibits different risk and return characteristics to conventional investments in other asset classes. The new Citadel Art Price index offered the opportunity to test this theory in the South African context. The Citadel index uses the hedonic regression method with observations drawn from the top 100, 50 and 20 artists by sales volume, giving approximately 29 503 total auction observations. The Index consists of quarterly data from the period 2000Q1 to 2013Q3. A VAR of the art price index, Johannesburg Stock Exchange all-share index, house price index, and South African government bond index were used. Results show that, when there are increased returns on the stock market in the previous period and wealth increases, there is a change in the Citadel Art Price Index in the same direction. No significant difference was found between the house price index and the art price index, and neither between the art and government bond price indices. The art market is also found to be inefficient, thereby exacerbating the risk of investing in art. Overall, the South African art market does not offer the opportunity to diversify portfolios dominated by either property, bonds, or shares.

Working paper 537
1 August 2015
Related Journal

Interdisciplinary Journal of Economics and Business Law, 2016, Vol 5
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