Researcher ORCID Identifier

0009-0004-7763-0649

Graduation Year

2024

Date of Submission

5-2024

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Professor Benjamin Gillen

Rights Information

2024 Jacob T O'Connell

Abstract

This paper works to offer a solution for everyday investors looking to allocate a percentage of their wealth into the alternative asset category of physical art. By taking 110 different artists ranging 6 continents in origin, representing every major auction market on the planet, and spanning a commission timeline of more than 6 centuries, this paper illustrates how the yearly returns of these artists’ art portfolios appreciate over time and, as a result, offer investment opportunity under the structure of a synthetic private equity fund. This private equity fund would, given advantageous variables discussed in this paper, create a strategy for investing in certain types of artists rather than the entire art market itself in an effort to yield the highest returns, the lowest correlations to major market indices and other alternative assets, and diversification benefits to common equity portfolios. This paper will focus on three main issues in trying to reach the aforementioned goals. First, this paper will discuss the viability of physical art as an asset class, definitionally, theoretically, and in practice. Then, this paper will use CAPM regression analysis and a Fama-French 4 factor Model alongside a qualitative bucketing approach to identify the characteristics that correlate most heavily to the positive performance of artists’ portfolios over time. Finally, this paper will make an attempt to model investment into those advantageous artists by calculating ideal weights for each artist’s portfolio given A) those artists are included in a two-asset portfolio with the S&P 500 and B) the weight is calculated by maximizing the Sharpe ratio of the portfolio.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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