Reconsidering psychic return in art investments

Measuring the psychic return of art investments is a debated issue in cultural economics. Several works suggest Jensen’s alpha as a measure of the psychic return. Since Jensen’s alpha is defined in the CAPM framework, its uncritical application as a measure of the psychic return may be problematic when the CAPM hypotheses do not hold. Applying an opportunity cost framework and the analytical tools of portfolio theory, we propose a new psychic return measure, which is not affected by the same issues as Jensen’s alpha. Psychic return estimates based on our measure are provided for several art market indexes as an empirical application.