Abstract
In this paper, we have attempted to provide new evidence regarding American art as an investment vehicle, using tools typically employed to evaluate the investment worthiness of financial assets. We provided a brief review of the CAPM, and then estimated a general version of it allowing betas to differ between early American and contemporary American art using auction data on paired sales during the period 1987–2013. Our results indicate that early American art and contemporary American art are two distinct asset classes; that contemporary American art is probably a good investment on strictly financial grounds, but early American art may not be; that incorporating transactions costs is crucial to evaluating whether art is a good investment in some cases; that it is in principle possible to design an asset portfolio containing only American art that mimics the investment characteristics of the market portfolio; and that what appeared to be an art bubble bursting in the fall of 2015 may simply have been a predictable response of art prices to a drop in the stock market.
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