Handbook of Finance: Financial Markets and Instruments

Chapter 58. Art Finance

RACHEL A. J. CAMPBELL, PhD

Assistant Professor of Finance, Rotterdam School of Management, Erasmus University & Maastricht University, The Netherlands

Abstract: Art finance is a rapidly developing area of international finance. Although direct investment in art is not new, structured solutions to investing in art indirectly mean that art is being considered an alternative asset class. A number of art funds have recently been launched, and a number of smaller boutique funds actively invest and trade in art, purely for financial gain. With the increasing amount of money pouring into the art market, banks are becoming increasingly interested in using art as collateral. Understanding how art is priced, as well as the risk and return characteristics of art is fundamental to portfolio management in all areas of art finance, when considering art as an alternative asset and the development of art banking and art finance.

Keywords: art banking, alternative investment, art funds, art indices, art pricing, risk and return

Artworks have been trading in auction markets and private dealer markets for centuries, so the concept of trading art is not a new phenomenon. Trading portfolios of artworks for pure financial gain and using art as an asset with an underlying value from which to obtain finance is a much more recent phenomenon.

Typically, turnover in the market is dominated by fine art paintings, making up 75% of the number of art sales; drawings and watercolors and sculptures ...