Rates of Return on Art Objects, the Fisher Hypothesis, and Inflationary Expectations

After surveying the evolution of the major methodologies in inflation hedging, this study presents a unique methodology that uses principal component factor analysis to separate the effects of variability in the real rate of return from the nominal rate of return. This approach allows the effects of both anticipated and unanticipated inflation on rates of return to be estimated more precisely. This study finds that art objects perform well in terms of average real rates of return and that the market, though not perfect, integrates anticipated inflation into the rates of return. However, unanticipated inflation is very often negatively related to the rates of return.