Art as an Alternative Asset Class Due to highly volatile equity markets, investors are in a permanent search for alternative asset classes to fulfill their need to uphold their returns without taking on too much risk. Moreover, increasing globalization has led to a diminishing impact of diversifying portfolios across borders. These recent developments have lead to an increasing popularity of hedge funds, private equity funds, real estate funds, but also other alternative investments such as art funds. The question remains whether the popularity of these investment alternatives can be thoroughly justified by financial motives. Current empirical research within the Luxembourg School of Finance evaluates whether investing in art might be a serious alternative to current standard asset classes such as equities and bonds. It appears that art markets are booming. Investing and trading in art has risen sharply over the last years. Both the total turnover and the number of lots sold have more than doubled over the period 1990 to 2015. Moreover, record prices for individual paintings have been accomplished in recent years. Parallel to this development, commercial banks seem to show an increased interest in investing in art as well. ABN Amro, for example, launched an art investment service in 2004 with the aim of developing an art fund of funds. Although this service was liquidated in 2005, the interest of ABN Amro was not an incident since a number of other specialized art funds have recently been launched (e.g. The Fine Art Fund based in the UK). However, in comparison with financial assets, art appears to be an unattractive investment. Investing in art is associated with high levels of risk caused by incorrect attribution, fakes, forgery, theft, and physical damage. Furthermore, it is related to high expenditures like transaction-, auction-, insurance-, maintenance- and restoration-costs. In addition, it is a heterogeneous and illiquid good, which is sold on a highly subjective, segmented and almost monopolistic market that pays no dividends. Financial assets, on the other hand, are (more) homogeneous and are characterized by being sold on numerous, more diverse and highly liquid markets. Besides, they can be selected through a relatively small number of objective criteria, have lower transaction costs and do usually pay out dividends. The question remains how we can assess whether investing in art is a reasonable alternative. Our current research takes a closer look at the risk-return trade-off of investing in art, namely of investing in paintings. For this kind of research we have built different art indices such as the “Old Masters 30”, “Contemporary 100”, “Chinese Art Index”, and the “30 Major German Painters”, among others. While the empirical results may vary, our general conclusion is that art investments have a low correlation with the broad financial markets and provide a lower, though positive, average risk-adjusted return. Because of this low but often slightly positive correlation of art with the broad financial markets, investing in art could serve as a useful function in a diversified portfolio, by hedging against financial market risk.