Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87687
Authors: 
Korteweg, Arthur
Kräussl, Roman
Verwijmeren, Patrick
Year of Publication: 
2013
Series/Report no.: 
CFS Working Paper 2013/18
Abstract: 
This paper shows the importance of correcting for sample selection when investing in illiquid assets with endogenous trading. Using a large sample of 20,538 paintings that were sold repeatedly at auction between 1972 and 2010, we find that paintings with higher price appreciation are more likely to trade. This strongly biases estimates of returns. The selectioncorrected average annual index return is 6.5 percent, down from 10 percent for traditional uncorrected repeat sales regressions, and Sharpe Ratios drop from 0.24 to 0.04. From a pure financial perspective, passive index investing in paintings is not a viable investment strategy once selection bias is accounted for. Our results have important implications for other illiquid asset classes that trade endogenously.
Subjects: 
Art investing
Selection bias
Portfolio allocation
JEL: 
D44
G11
Z11
Document Type: 
Working Paper

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