William N. Goetzmann

The single largest source of risk for the art investor is public taste. The investor confronts the possibility that a work of art will fall from fashion. Most studies of returns to art investment cannot control for this "obsolescence" factor because they use transactions data, which implicitly conditions upon artworks being in demand. In this paper, we conduct an ex ante study of painting investment by randomly sampling auction records each decade beginning in 1907.

We then appraise these works as of 1987 using current auction records. Works by painters not found in the auction record over the period 1977 through 1987 are deemed to be "obsolete," and their art of little or no value. Despite an "obsolescence"rate of about 20%, it appears that the returns to art portfolios held to 1987 exceeded inflation, and kept pace with investment in bonds. The risk of art investment appears lower than earlier studies have suggested.