What drives the value of art? - A quantitative study on the Swedish market for paintings

Sammanfattning: In 1989, Swedish writer Olof Lagercrantz sold "Fyrtornet II" by August Strindberg for 15.6 MSEK, a painting he had bought 11 years earlier for 70,000 SEK. This story is reminiscent of the public perception of the market for paintings, namely that art and high quality paintings in particular, are good investments. By using a previous dataset of 19,065 sales of paintings covering the period 1985 to 2006 and adding 6,902 transactions covering 2006 to 2016, we have created the largest dataset of Swedish auction prices for high quality oil paintings. This dataset has enabled us to create a Hedonic Price Index from which we have concluded that an investment in paintings has yielded an average return of 0.6% per year between 1985 to 2016. Additionally, using the methodology of Nasdaq indices with reinvested dividends, we have attempted to quantify something that has been identified within the subject field as the main source of discrepancy between share investments and investments in paintings, psychic returns: The pleasure one receives from consuming art. Our conclusion is that the only justifiable reason for investing in paintings is pure love of art.