Art Market Arbitrage –

Art Market Arbitrage –

art investment 2For those of you unfamiliar with arbitrage, defines arbitrage as “attempting to profit by exploiting price differences of identical or similar financial instruments, on different markets or in different forms”. In my opinion, arbitrage is one of the most interesting and potentially profitable ways to make a profit from fine art but it does require a relatively high level of art market knowledge. The reason that arbitrage is possible with the art market is because the art market is relatively inefficient and pretty much unregulated. What this means is that the value of a work of art can differ greatly depending on where a work of art is sold.

There are essentially two ways that one can profit from price discrepancies for a single work of art. The first involves purchasing a work of art from a smaller, perhaps regional auction house where the prices are likely to be lower, and then selling at one of the big two auction houses where prices are likely to be higher. To profit from this method of “investing”, one needs to be able to identify works of art that do have the potential to attract a high price if presented to a more wealthy audience which, as I stated earlier, would require an extremely good knowledge of pricing and the mechanics of the art market. The second arbitrage method involves purchasing a work of art from one country where that artist/subject/period is not very popular and selling in another country where that artist/subject/period is more popular. An example of this form of art arbitrage took place in Japan where, during the recent contemporary art market bull run, dealers would purchase works of art at auctions in Tokyo and then sell them at a higher price to the west.

The internet has had both a positive and negative effect on art arbitrage. On the positive side are the increased opportunities available to art arbitrageurs due to the ease with which one can now browse auction catalogues from all over the world and bid on those works online. However, the internet has also provided the opportunity for more people to find and bid on works of art which increases the likelihood of there being competition for that work of art that the arbitrageur has identified as being a good buy. All in all, art arbitrage can potentially be a quick and highly profitable method of investing in art, but it is also very risky and requires an excellent knowledge of the art market and a decent amount of capital. Best left to the experts then but an interesting concept all the same.

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.

One Response

  1. There is another issue to arbitrating art (beyond an understanding of art pricing): Retail commissions! Unless you are a gallery that has a special agreement with galleries/auction houses, there is almost no way to overcome the 25% spread.

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