Fine art photography as a form of investment

This thesis contains a research on the performance of fine art photography in the global art market in 1996-2008. Using the data base with 83,000 auction sales records, I applied average (naïve) price index methodology to determine rates of return on investing in photographs. The caluclations were made using three approaches according time classification – monthly, semi-annual and annual analysis. The data was sorted in two sets – total sales and sales excluding top 1.5 per cent of outliers. Based on the price indices obtained, I concluded that fine art photography on total sales results with an average of 7 per cent for semi-annual period and 10.78 per cent for annual period (in real terms, U.S. dollars). To test the ‘Masterpiece effect’, I computed rate of return on top 1.5 per cent of highly priced artoworks, compared it to the rate on rest of photographs and concluded the presence of anomaly on this market. The rate of return as well as the rate of market volatility were high (16.07 per cent and 24.08 per cent relatively), which implied that expensive artworks are considered to be financially beneficial, but risky assets for funds allocation. During the 2002-2007, I detected boom period when art prices were growing steadily and sufficiently, which explained the increased attention to fine art photography as a form of investment. To determine whether photography is a relevant sphere to invest in or not, I compared the results to the financial market, represented by the Dow Jones Industrial Average Index. After classifying the data into semi-annual and annual sets and deducing rates of return, I experienced that art market substantially outperforms classic assets. However, rates of volatility on financial market were detected to be the lowest comparing to art market indices. The closest rate of risks was present on annuallized fine art photography set where returns exceeded financial results by seven times. Essential to mention that art market differs from financial markets first of all by high transaction costs that tend to spread over time, but here (in short-run period 1996-2008) may influence rates of return sufficiently. Numerous characteristic features of the art market should be considered while constructing the investment porfolio, however the results of this research demonstrated high and promising results on fine art photography as a form of investment.