Buy art for pleasure, not profit, researchers say

"Paintings are primarily aesthetic investments, not financial ones," said economist Roman Kräussl.

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New research suggests returns on investment in fine art have been significantly exaggerated. Economists' advice to collectors: buy art if you enjoy it, but not with the expectation of profit.

No longer simply framed and hung in homes or museums, art is now bundled into financial instruments and used to diversify investment portfolios. Financial analysts have measured the annual rate of return for art funds at 10 percent over the last 40 years.

But new analysis by researchers at the University of Luxembourg's School of Finance suggest the rate of return is significantly lower. Their findings were detailed in a paper published in the journal Review of Financial Studies.

Economists looked at auction sale data collected by the Blouin Art Sales Index to more accurately measure both the potential returns and risks involved in art fund investments. Their work suggests art as an asset provided a return rate of 6.3 percent between 1960 and 2013. Researchers also found the risks assumed in hopes of profit were underestimated.

Researchers blame the overvaluation on selection bias in the art market. The most valuable and quickly appreciating pieces of art go to sale most frequently and are sold for the highest prices. These inflated prices are then used to overvalue the remaining art that doesn't sell.

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