Craig Mattoli has a long, fascinating post on Jing Daily translating the art market into conventional investment theory terms. Mattoli lays out the case that art is “a fairly simple investment vehicle.”
One complaint Mattoli has is that art offers few opportunities to hedge. Then he brings up one of those interesting but little explored innovations, the art stock exchange:
Art stock exchanges, with limited numbers of stocks with very limited capitalizations, have popped up in several cities in China over the last year. These art securities cover portfolios of one artist’s works. The initial experiences were blowout pricing, resulting in indeterminate closure of trading. An art stock exchange was also opened in France. Certainly, if any depth of these markets were developed, they could be used by collectors, art funds and dealers alike if there were, in addition, the ability to sell them short. Then, you could hedge your actual art portfolio. Problems are: the ability to short, liquidity of the markets, limited number of artists and works covered, and mismatches of the underlying art-stock portfolio composition versus works held by an investor.
The Earning Power of Art (Jing Daily)