The MeiMoses All Art index, which is based on the resale values of paintings sold at public auction in New York, shows a correlation of 0.04% (over the past 50 years) with the US stock market.

Consequently, art has the ability to reduce the risk of a portfolio when combined with the other assets and Art combines passion and investment.

But under purely financial aspects as well, art is a genuine contender as part of any sophisticated asset planning, hence looks like the right candidate for inclusion in portfolio.

Wolfgang Wilke says, "Investment in works of art helps reduce portfolio risk as trends on the art market generally have a slightly negative correlation with the financial markets."

William Goetzmann at Yale School of Management has subjected the art market to econometric analysis, and found that the art market's beta - its synchronized movement with the stock market - is higher than one.

This means that in boom times art moves up more, and in crashes art drops lower.

But the effect is lagged. If the past is any guide, the art market will react with a delay to declining stock markets and economies. In the immediate aftermath of the stock market crash in October 1987, Sotheby's and Christie's achieved record prices.

The crisis hit the art world only at the start of the 1990s. Usually, there is a time lag of nine months to two years between the decline of the equity market and the decline of the art market.

Also Bill Muysken feels art is unlikely to reduce risk for investors to any material extent. "The value of artworks tends to be highly correlated with equity market values, as many wealthy investors - if the past is any guide, the art market will react with a delay to declining stock - markets and economies in art tend to draw their wealth from equity markets," he adds.

Nevertheless, art as an investment cannot be overlooked for one unique reason: An ever-increasing demand coupled with an absolutely limited supply. Add to that ability to survive economic downturn, one would start contemplating about investing in it.

I. E. C. Haramis says, "Although putting money into art may not be as straightforward as investing in bonds or equities, the art market is attracting increasing interest. As a result, we are now seeing a lot more new and old investors that are looking to put their money at art."

Wolfgang Wilke feeling the same says, "art is an asset class of its own. It is neither a real asset nor a financial asset. Art combines passion and investment. But under purely financial aspects as well, art is a genuine contender as part of any sophisticated asset planning. Its share in the overall asset mix should be between 5~10O ~"

Valuing art is very different from valuing financial instruments. The difficulty of investing in the art market arises from the art market's inherent inefficiencies. The main trouble with investing in art is that it is almost impossible to identify an intrinsic value. It is about aesthetic judgments.

Each art is different and prices for individual works may be unpredictable and difficult to compare.

Valuation is based more on human emotion than on any predictable model. Rival bidders who like the same piece can quickly push the sale price beyond all estimations. Accepted price levels for works of art are established by the interplay between auctioneers and dealers.

Wolfgang Wilke says, "There is no objective" value for works of art. Prices follow overall prosperity (income growth) and evaluation according to aspects of taste. Those items, which become the focus of a change in taste later generate the highest yields. Anticyclical investment is thus the hallmark of the successful investor." In the end, as the beauty lies in the eyes of the beholder, so is the value.

The key for art investing success, like stocks, is predicting which works of art will increase in value. Investors who are not hesitant of high risk can make the biggest gains at the lower end of the market by investing in lesser known and new artists.

The problem with this is that there are so many artists in the world and finding the one that will become the next Rembrandt or Picasso can be next to impossible. It is unlike predicting the companies that would be future stars.

Art market can be divided into five categories: Old Masters (1300-1860), Impressionists (1860- 19"10), Modern (1940.1970), Contemporary (1970-1985) and Very Contemporary (1985 onwards).

It is the last category that is more risky. Old Master art tends to hold its value because it embodies the deepest aesthetic and cultural qualities, and acquires tangible investment value as a source of these qualities.

In the case of contemporary art, so much of it is based on a fashion and artists tend to rise and fall very quickly. At the same time, top art is unlikely to fetch huge gains.

It is much less likely to increase in value than middle or lower-priced works, according to Mei/Moses fine art index. For art value, artist, of course, is the most significant factor, but only a starting point.

To be able to attract a top price, a painting must also be thoroughly typical of the artist i.e., the style which people have come to think of as characteristic of the appreciated enormously in value over time, it is difficult to make a case for artworks' overall earning a positive net rate of return in real terms over the long run.