Long- and Short-Term Portfolio Choices of Paintings

In their paper on price comovements of paintings, Ginsburgh and Jeanfils show that in three important markets (London, Paris and New York), prices of well-known and lesser known painters "move together" (are cointegrated). They conclude that therefore, an investor may be indifferent between the two groups of painters. We show that this is not the case, since well-known painters are less risky, and that though returns may be comparable, the share of well-known painters in a portfolio of paintings might be as high as 90%. We also construct long-run and short-run portfolios and show that these may be very different. These short-term portfolios give interesting insights which help in characterizing each of the three markets.