Determinants of galleryâs pricing for contemporary art
The quality of an artwork cannot be objectively
determined since the value of art depends also on cultural norms and social
acceptance. So how can we define the determinants of the price setting behavior
for the primary art market?
With the help of quantitative data the research
of M. Rengers and O. Velthuis gives us the answer. The model they developed is based on a three
level classification of the price prediction: the work of art (size and
material), the artist (age, sex, place of residence, institutional
recognition), the gallery (location, institutional affiliation, age).
The main findings show us that the size and material of works of art,
and the age and place of residence of the artist are the most important
predictors of price. Remarkable is that artists characteristics explain a
large amount of variance in prices. So the main function of galleries could be
reduced to selecting artists instead of the age of the gallery or its
institutional affiliation who explains just a small part of the variance in
prices.
Though price setting behavior in economics is more mechanical and
over-abstracted, it cannot be stressed sufficiently enough that the
incorporation of the social and institutional processes heavily influences and determines
the pricing of the primary art market.
Nathan Dujardin
Rengers, M., Velthuis, O. (2002) Determinants of
Prices for Contemporary Art in Dutch Galleries, 19921998. Journal of Cultural
Economics. 26, 1-28
In the fifties and the sixties the annual
rates of return for art works went from 3 percent to over 35 percent per year according
to the Times-Sotheby Index. Knowing that recent rates could be even bigger if
we look at the price evolution in the last 20 years, which exceeds the long
term average, this seems an enchanting
investment medium. But is it? Maybe so!
Robert C. Anderson examined the price of a
painting depending upon the year it was sold, the size of the painting and the
artistic repute of the artist. Other variables such as the place of sale and
whether or not the artist was still alive proved insignificant. He also uses regression analysis to estimate the rates
of returns for various time periods. The
period of measurement and the school are decisive elements in determining the
rates of return. He uses 1900 prices to become estimates which came quite close
to those in the Times-Sotheby Index.
In view of the significantly higher risk because
the long term rate of return on paintings is only half of what common stocks
produce, he concludes that the consumption of art must be the primary
motivation behind its purchase, i.e. decorative and aesthetic-prestige
services. So keeping in mind the big risk and the personal value of paintings, buying
them is not the most certain but maybe the most pleasant investment you can
make.
Nathan Dujardin
Anderson, Robert C. (1974) Paintings as an Investment. Economic
Inquiry, 12:1, 13-26
The valuation of Canadian paintings is analysed empirically
The article deals with a research on factors who determine the prices of art pieces, especially Canadian paintings. There are two elements of uncertainty: uncertainty about the future evolution of one's own taste and uncertainty about the future evolution of tastes of society in general, which is remarkable.
Using the hedonic regression (method) gives a nice view on the influence of several factors on the auctions prices. The essence of this method is to collect information on a number of art sales over different periods, and to explore the link between the price of the work and the work's characteristics, such as the artist, the size, the medium, the auction house, the time period,... The purpose of using a hedonic regression is to estimate a conditional capital asset pricing model for art returns.
The paper gives a clear and comprehensive econometric analysis of pricing and returns in auction market for Canadian paintings. The results of the research form relatively 'independent' evidence on this subject, as most of the works focuses on American and European art. The results are more or less similar with the 'stylized facts' in the literature, than returns are generally lower than stock returns.
BRIC ( referring to Brazil, Russia, India and China) is an economic term which is often used.
I was asking myself wether the art market is already booming in these growing economic powers. In my quest I found an article which set up several econometric models of the evolution of art value for different periods in China, India and Russia. These models led to several correlations. the author set up a Russian, an Indian and a Chinese art market index. During the periods of research, all three the indices knew a strong growth, which might make them for several investors profitable pursuits.
At the end of the article the author tries to find out wether investments in the emerging art markets are a reasonable and interesting alternative in compare with traditional financial assets. This is of course a tough job, because art never offers a dividend or interest and it stays in a certain way a speculative investment.
Those data may mislead us. Investing in art be very astonishing lucrative but also a huge loss. Art investigations are pretty risky investments. We can never forget that art is basically created for its aesthetic part.
Art as an Investment: Empirical Study of Asian Contemporary and Chinese 20th Century Modern Art
Who thought
that London and New York were the only big art markets? Christies in Hong Kong
brought in 50 million dollars recently. Because of
the growing markets in Asia the art became more popular.
Its a fact
that the Asian Contemporary and Modern Art returns are positive and cause high
benefits, higher than the alternative stock markets and the art markets in the
Western countries. According to the semi-annual observation data used in the
article Art as an investment of 24,200 auctioned items in Hong Kong, Taiwan
and China for the period 2000-2009, we can observe that the masterpieces have a
higher expected return than non-masterpieces. Next to this Masterpiece
Effect, we mark the Main Auctions Effect. Asian Contemporary and Modern Art
pieces sold at main auctions return more than pieces merchandised at other
auctions. Why cant
we observe these characteristics of selling art in the West?
The rising
art market is an extension of the rising Asian economy. Due to the Asian
economical strength the art market increases and competes against other markets
worldwide. I believe that one day, as will the worlds economical capital, the
heart of the art market will settle in Asia.
Paulien De
Visscher
Shui-Hui
Hseih, Jin-Ping Lee and Larry Y. Tzeng, 2011, Art as an Investment: Empirical
Study of Asian Contemporary and Chinese 20th Century Modern Art, Financial NTU, 1-24
The ârightâ price for art collectibles. A Quantile Hedonic Regression Investigation of Picasso Paintings
What makes
a Picasso more expensive than a Haring? And how do we distinguish one Picasso
from another? Different evaluation procedures hypothesize the difference in
prices.
Is it
possible to use a model to determine the price of an art item? The answer is
yes. In the
article of Scorcu and Zanola, they observe the price of 716 Picasso paintings
sold between the year 1988 and 2005. To see the relationship between the
characteristics of the art items and the hammer price they use the hedonic
regression approach. In that approach the price is concluded by hedonic
characteristics (author, genre...), market variables and time dummies. Although
we have to consider that the characteristics of an art piece can vary in time.
The article
teaches us that the dimensions of a Picasso have a positive effect on the
price. Also, the Old Picasso Style was his least good performance. The most
important market for a Picasso is New York. Can we make
the same conclusions for the other artists?
As the
article The Right price for art collectibles says: The empirical evidence
suggests the existence of significant differences both in the way prices respond
to characteristics and in the rates of return from an investment in paintings
across different price ranges. In my
opinion the models can be useful in a pure objective perspective, in a more
subjective approach, one cannot prevent people from paying huge amounts of
money for a painting they really want to have.
Paulien De Visscher
Antello
Eugenio Scorcu and Roberto Zanola, 2011, The Right price for art collectibles.
A quantile hedonic regression investigation of Picasso paintings, The Journal of Alternative Investments, 14,
89-99
