How Do Art Returns Compare to the S&P?

"This painting was bought at a major peak in the art market for a significant price and thus the modest return is not a surprise… It is also true that the owner had the opportunity of enjoying this painting and would not have been better served by investing in the S&P 500 total return index, except for transaction costs, for the same period of time," according to the firm.

The roughly 3,100 sale-pairs Mei Moses identified in 2012 generated an average compound annual return of 6.7% versus 6.8% for the S&P 500 total return index for the same holding periods.

"This is a positive result for the owners of the art since they achieved relatively similar returns, before transaction costs, and obtained the enjoyment from viewing the art for free or at the cost of the transaction," the Mei Moses report concludes.

The report includes other interesting observations on last year's transactions:

• The average price tracked was $518,910, but the median price was only $63,718. That means half the transactions were for less than the lower figure, implying that high-quality art is accessible to more buyers than the headline sales imply.
• Less expensive art generated better returns but with more variation. Sales for less than $50,000 provided mean returns of 7.48% with a standard deviation of 17.23%.
• Returns for more expensive objects were lower but their standard deviations were also lower.
• Sales between $500,000 and $1 million, in contrast, generated returns of 5.51% with a standard deviation of 10.93%.
• Excess expectations can result in a no-sale.

Mei Moses also examined 1,487 repeat sales pairs for artworks that were offered but did not sell in 2011 and 2012. Although many of the price statistics between sold and unsold objects were similar, the firm notes that a key difference in the pre-sale price ranges.

"However when you come to the average expectation of the two owner groups (sold and unsold), we see that the works that did not sell had a mean return expectation three times that of the works that did sell," the firm says in a recent report.  "Therefore on average setting a return expectation too high reduces the likelihood of a positive outcome for the owner of the art.  This is a fact that is replicated in our full database."