The recent surge of interest in alternative assets enabling portfolio diversification entails the need to evaluate their basic investment parameters such as rate of return and risk. To determine these factors in the market for paintings, it is necessary to develop a price index for those artworks. The objective of the present paper is to compare the profitability of investment in 19th century, modernist, and contemporary paintings in Polish market. The paper analyses investment parameters of the Polish art market based on the sales of paintings by the 30 most popular Polish in the years 2007–2012. The study sample consisted of 1,714 auction records for the Polish market. Semiannual hedonic price indices were determined for the studied markets based on a hedonic regression model incorporating both qualitative data (artist’s reputation, painting medium, period in the history of art, auction house, and living status of the artist) and quantitative data (surface area of the painting), which affect artwork prices. The hedonic indices were subsequently used to estimate rates of return and risk. A break-up into art periods revealed significant differences in terms of the number and profitability of transactions. The number of transactions involving 19th century paintings was small, while the rates of return and risk were 18.5% and 24.35%, respectively. Modernist paintings yielded a rate of return of 12.98% and carried risk of 24.97%. In the contemporary art segment, profitability and risk reached 8.35% and 14.57%, respectively. This means that in the contemporary art segment, investment in Polish paintings yielded the lowest returns and was fraught with much lower risk. This may indicate that Polish investors exhibit a more conservative approach to investment, preferring traditional 19th century paintings. 

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1. Factors Affecting the Works of Art Prices on the Auction Market in Poland