As an investment, art makes a pretty good wall hanging. So says this academic, whose career straddles culture and commerce: Currently director of the International Center for Finance at the Yale School of Management, he formerly served as head of the Denver Art Museum. Sarah Douglas speaks with him about the perils of treating artworks as assets.

In December you said the art market was in a state of "collapse." Do you stand by that?

It’s fair to say that we’ve had a collapse in art prices — or at least a severe drop — that is consistent with the collapse in the prices of securities and other financial assets. It’s about the same magnitude.

How will the economic bust affect the market?

We’re likely to go through a radical shift in taste. If the economy is really changing and social norms are changing, then that could change the way we view things like [Damien Hirst’s] sliced- up sharks.

What other adjustments might take place?

Rediscovery of past masters. There are periods when America celebrates the roots of its art: regionalism. As our views of ourselves change — the rediscovery of old-fashioned values — don’t be surprised to see Grant Wood all of a sudden looking really good. Or Thomas Hart Benton.

Are you extrapolating this from what’s happening in finance?

What I’m hearing right now is a huge rejection of financial engineering and abstract financial securities, and the desire to go back to the fundamentals of solid stocks, solid bonds. I’m making a guess about the art world as a reflection of contemporary culture.

What does that mean for art as an investment?

The long-term gain in collecting art is somewhere between those of stocks and bonds. The average annual growth of an art index calculated by my colleague Matthew Spiegel and me from 1949 to 2006 was 7.8 percent. It’s possible that the result is upward biased, because the index is based on repeated sales of the same works, which means they had to be good enough to sell more than once. In one study, I tried to correct for this and still found that art from 1908 to 1998 returned something between what stocks and bonds returned. Art does seem to behave like an investment asset, except for the very high transaction costs. But art is uncertain and risky and volatile. I just don’t think the return compensates for the risk. It’s not that art isn’t going to go up in time. It will, but modestly in comparison with what you would expect as an investor.

Still, your studies must have brought the art-investment funds knocking.

I think every time some entrepreneur looks around to find out what the return is for art as an investment, I get a call: "Hey, we’re starting an art fund." I hate to sound like a sourpuss, but I’m pretty skeptical. There are basic operational problems, like who gets to keep the art, who decides what art to buy, lack of liquidity. Those funds are hard to do and unlikely to be profitable.

When might the art market recover?

The world is in a wait-and-see mode about investments. When capital just disappears, that creates extraordinary financial distress at many different points. The art world isn’t much different. All the dealers that held inventory are facing the same sorts of difficulties. Even major collections are having to dig deeper into their asset bases, trying to figure out how to commoditize their works of art. Look at Brandeis!

You mean Brandeis University’s decision to close the Rose Art Museum and sell at least some of its collection, to raise funds in a hurry?

It’s the same thing that has happened with real estate and securities. Art is one of the assets of last resort. There is a recognition that you can’t just dump everything onto the market. We haven’t seen a flood of sales, because it’s just not feasible. The Brandeis case is fascinating. That the administration looked at the works’ appraised value from a couple of years ago and thought, "Oh, we have $350 million we can spend!" is so naive.