The Auction Market for Modern Prints: Confirmations, Contradictions, and New Puzzles

Abstract

"Using a large data set with 80,214 repeat sales, we find that the real return on a diversified portfolio of modern prints sold at auctions worldwide averaged a modest 1.51% during the period 1977-2004. We address several issues regarding the performance of modern prints as investments: the selection bias arising from the self-interest of auction houses; the impact of an ever-expanding universe of auction houses on investment returns; the "masterpiece" effect, or whether more expensive works of art outperform the market as a whole; and the differences in returns that arise due to random fluctuations in collector tastes." ("JEL" Z11, G11, G14) Copyright (c) 2007 Western Economic Association International.

Bubbles and Trading Frenzies: Evidence from the Art Market

“…If sentiment is high and art prices are above their fundamental values, pessimists will react and put more items for sale. Moreover, auction houses are more likely to solicit potential sellers in "hot" markets (Pesando and Shum, 2008). On the 17 Tobias Meyer, who in 2006 was the director of Sotheby's contemporary art department worldwide, said to the New York Times (Vogel, 2006): "Collectors want to beat the galleries at their own game [.…”

Art and Money

“…In contrast, however, Mei and Moses (2002) report a correlation coefficient of not more than 0.04 between the S&P 500 and their art index (annual real returns, 1950-1999). Pesando and Shum (2008) find a correlation of 0.21 between the same stock index and their index for modern prints (semi-annual real returns, 1977-2004). Some of these differences may be due to the use of different intervals of observation and estimation, or to drawbacks of the repeat-sales regression, the method commonly used to build art indices.…”

“…For example, using different estimation techniques and ever-larger auction sales datasets, Baumol (1986), Pesando (1993), Goetzmann (1993), Moses (2002), Campbell (2008), Pesando and Shum (2008), and Renneboog and Spaenjers (2009) have studied the price appreciation of art over time, and compared the returns to those on financial assets. In addition, researchers have focused on the price determinants of art objects, anomalies in the price formation in the art market, and the diversification potential and collateral value of art.…”

The Iconic Boom in Modern Russian Art

“…Renneboog and Spaenjers [2010] found a correlation of 0.47 between art and a global equity index, in contrast to the relatively low positive correlations between art and stocks reported by Mei and Moses [2002] and Pesando and Shum [2008]. Others have looked into the lagged relation between investor wealth and art prices.…”