Does art make a good investment?

The art market is enjoying its dizziest ride since the late 1980s, with price records broken over the past month as Gustav Klimt's portrait of Adele Bloch-Bauer fetched £73m to become the world's most expensive painting. Klimt joins Picasso, Van Gogh, Monet, Cezanne, Matisse, Degas, Modigliani amd Chagall in the so-called blue-chip brigade', which commands the highest prices and biggest international interest.

Living artists are also benefiting from the bonanza. David Hockney's The Splash (pictured) achieved £2.9m £1m more than his previous record set only a month earlier, while Bridget Riley's Untitled (Diagonal Curve) joined the small group of women artists whose work attracts over £1m.

Thanks to its role as a global financial centre, the boom has reinforced London's position as the world's second art city after New York. Sotheby's mid-June sale of Impressionist and modern art raised £88.7m, the most ever, just pipping rival Christie's, whose own sale took £86.9m. This "warring duopoly" has long dominated the auction world, says Rebecca Rose of the FT, with both trying to get a share of the action as they "feign indifference over what the other is up to". According to Charlotte Higgins of The Guardian, the boom has been driven by the "wallpaper generation": people with money who prefer to spend their millions on art than a stately pile in the country." What distinguishes the current frenzy is the entry into the European market of buyers from Asia, the Middle East and Russia. It was a Russian bidder who, in May, bid $95.2m at Sotheby's for Picasso's Dora Maar au Chat.

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At these prices, fine art represents a huge investment, says Daniel Gross in Slate. But is it a good one? Professors Michael Moses and Jianping Mei of New York University have compiled an index tracking long-term performance. It found that a Turner view of Venice, which sold at Christie's in May 1897 for $35,000, fetched $35.8m when auctioned this April a "pretty darn good" 6% annual return over 109 years. However, the index shows prices lagged the S&P 500 over the past 50 years; it only beat stocks in the five years 2001-2005.

Will boom turn to bust? The last boom was snuffed out when Japan collapsed in 1989. The subsequent crash "saw New York's SoHo, then the city's main gallery district, end up a ghost town", says Higgins. Current wisdom, is that the new globalised market is more stable. Current wisdom is probably wrong.