The Research Of Optimal Portfolio Contains Artwork Investment

As the rapid development of art market,the investment for artworks is gradually emerging.Nowadays,art market has become another investment field following the stock market and real estate market.However,when confronted with the high return of artwork investment,investors should take care of the potentially high risk and consider how to hedge it.Modern portfolio theory has put forward an idea of diversification which is beneficial to minimize the risk in a given return level or maximize the return in a given risk level.The low correlation between art market and traditional investment markets make artwork become the perfect investment.In this paper,I build a new portfolio which contains artwork so that I can study the difference of return and risk between the new portfolio and the traditional one.Moreover,I will study the asset allocation of optimal portfolio.Firstly,a hedonic price model which contains time dummy variables are built based on the auction date of China painting market from autumn 2003 to spring 2016.Then I obtain the hedonic price index of painting market which can represent China's art market.In addition,with the help of econometric methods,I study the correlations between art market and five traditional markets(stock,bond,gold,foreign exchange and real estate).Johansen co-integration test concludes that art market has the negative correlation with FX and real estate market and has the positive correlation with the other three markets in long run.Granger causality test concludes that art market doesn't have statistically causal relationship with the other five markets.These conclusions reveal that art market has the low correlation with traditional investment markets.Lastly,with the help of the mean-variance model,I study the difference of return and risk between the new portfolio and the traditional one.The result shows that the new portfolio has a lower risk when obtaining the same return.Given the risk-free borrowing and loaning,the return and risk of the new portfolio both increase,but the increase of return is more.In optimal portfolio,investors should use 4.58 percent of their capitals to invest artworks.