Department of Economics

Do U.S. Paintings Follow the CAPM?

Department of Economics

University of Delaware

Working Paper #2006-02

Do U.S. Paintings Follow the CAPM?

Findings Disaggregated by Subject, Artist, and Value of the Work

 Richard J. Agnello

          This paper investigates to what extent paintings by U.S. artists born before WWII can be treated like capital assets, and whether the findings are specific to artist, subject matter, and value of the work.  The capital asset pricing model (CAPM) in its standard static form is applied to painting returns from 1971 to 1996.  Price indices and returns for various groupings of paintings derived from large sample hedonic regressions are used to test alternative forms of the standard CAPM.  In the first stage time series estimation, betas for various data groupings are computed to test the degree to which the CAPM explains returns.   In general the CAPM signals no factors other than market risk which might explain painting returns.  Betas generaly are found to be below one with high priced works having betas close to zero and sometimes negative.  U. S. paintings appear to have little systematic risk, and thus may provide useful diversification.   In a second stage test of the CAPM the computed betas are treated as a long run characteristic accounting for excess returns of the asset.  In this cross sectional re-estimation, little support is found for the consistency of the CAPM although high priced paintings show some support.   U. S. paintings appear to follow the CAPM to a degree similar to that of traditional capital assets, and thus behave like capital assets regardless of investment desirability.  For high value works the CAPM conformity is strongest and diversification value the highest.     

  (JEL: G11, G12, Z11)

The Lerner College is home to a state-of-the-art financial trading facility, the $1.4 million student-led Blue Hen Investment Fund, a student-managed restaurant and hotel, a high-technology development center of a global bank and a start-up experience for students with new business ideas.

Lerner College faculty - like Anu Sivaraman, who is among Social Media Marketing Magazine’s “Top 100 Marketing Professors on Twitter” and MBAprograms.org’s “Top 50 Marketing Professors on Twitter” - are thought leaders who command attention from influential business audiences, economists and policy makers.

All Lerner College departments offer experience-driven learning and emphasize evidence-based analytics methods to enrich the student experience. Here, finance students visit New York City’s financial districts for a first-hand look at markets trading and to meet with UD alumni.

Charles W. Horn, AS75, and wife Patricia, recently made a $3 million commitment to enhance and expand entrepreneurial studies.

  • Alfred Lerner College of Business & Economics
    303 Alfred Lerner Hall  •  Newark, DE 19716  •  USA  •  ©