The Hedging Machanism For Art Investment Fund

Nowadays, the demand for art is in growth with the increase in wealth and diversity of investment. Art, as one of the three major investment markets, its investment value gradually has been recognized and pursued by the investors, Art investment funds are developing in such environment, reflecting the trend of art combining with finance and institutions investment. But the art market has much inefficiency, such as high transaction costs and uncertain hot point, greatly increasing the risks of art investment funds. More importantly, art market, unlike the traditional investment market, is without the existence of hedging mechanism, so the funds can't use derivatives to hedge their risk. "Art Trading Fund", as the first art hedge fund in the world, tried to use equity derivatives to resolve this problem, but the price of stock is connected closely with the economic, as well as suffers from the situation of company, so the equity derivatives can not serve as an ideal hedging tool. Otherwise, due to the same attribute of heterogeneous goods, the hedging mechanism of the real estate market is a good example for art market, so this paper makes reference to the real estate derivative and the credit derivatives, especially the total return swap to hedge the risk of art market, In addition, art hedging mechanism depends on a more comprehensive art market index. Currently art market index commonly uses repeat sales method and the average method, which has each drawbacks, Hedonic method is better method of establishing art market index aimed at such heterogeneous goods, it not only can include many attributes into the index, but also contain larger scope of data.