Artnet has launched a set of indices which are meant to “measure price performance and other important market metrics for individual artists and artworks with the same rigorous standards used in financial indices” writes Felix Salmon. Some highlights of his report include:

• Artnet likes to claim that its index of contemporary art has outperformed the S&P 500 since 1988. The implication is that contemporary art is a better investment than the stock market.
• However this is misleading. Stocks can pay dividends, art doesn’t. If you take a look at the S&P 500’s returns with dividends reinvested, the gap is much smaller.
• Moreover you can’t just invest in contemporary art in the same way that you can invest in the shares of a company.
• The index suffers from survivorship bias – artists only get added to it after they’ve become popular. Without hindsight it’s impossible to know which ones would do well.
• This is unlike the S&P 500 which is meant to be a benchmark that tracks the overall performance of the market.
• It is fitting that Artnet has focused on contemporary art. This is the fastest growing market. But if you looked at ‘art’ as a whole things wouldn’t look as impressive.

To read many more details including the third type of survivorship bias, what the S&P 500 is meant to do, the limitations of the index, some of the big name contemporary artists of the past and present, the overall churn of the indices, the country that dominates contemporary art, as well as some clear and concise graphs that demonstrate the problem, click here.

Source: Reuters

Via: Marginal Revolution