The Art Market: An Econometric Model Presentation by Jordan Pock

Outline Motivation Background Information Literature Review Economic Theory Data and Methodology Results and Analysis Conclusion

Motivation What is the value of an experience good? How do we place an economic value on cultural goods? What if economists are able to predict trends in the art market?

What are the factors that determine the price of a piece of art? Can economists identify trends and market inefficiencies? Can we earn higher than average return on investment? The Economics of Art

Understanding the Art Market Created by three sub-markets Primary Secondary Auction market Importance of Auction Houses Components of the sale

VARIABLE AND THEIR PREDICTED RELATIONSHIPS 1. Age of artist at his death ( - ) 2. Age of the artist at completion of painting ( - ) 3. Number of auction records ( - ) 4. Number of painting records ( - ) 5. Page number of reproduction in catalogue ( - ) 6. Lot number at auction ( - ) Hypothesis

7. Size ( + ) 8. Low presale estimate ( + ) 9. High presale estimate ( + ) 10. Signed ( + ) 11. Dated ( + ) 12. Day sold (undetermined) 13. Month sold (undetermined) 14. Style (undetermined) 15. Location of sale (undetermined) 16. Country of origin (undetermined) VARIABLE AND THEIR PREDICTED RELATIONSHIPS

Literature Review 1. The Supply and Demand of Art Works Regression Analysis of Wine (Ashenfelter 1989) Order of Auction sales (Beggs et. Al. 1997) State of the Economy (Candela and Sorcu 2001) 2. The Risk and Return of Art as an Investment Risk of Holding art as an Investment (Chanel et al. 1994) (Anderson 1974)

3. Transaction and Information Costs of Art Costs of art vs. traditional investments (Matsumoto 1994) Increased venues for trade reduce costs (Wilke 2000) Literature Review- continued

Economic Theory 1. The Demand for Art Far fewer buyers than sellers Wealthy individuals, private collectors, or museums 2. The Supply of Art Unlimited number of painting by an unlimited number of artists

3. Art as a Normal Good Differentiated good Substitutability 4. The Economics of Risk and Return Economic Theory- continued

Data The Data Set: 194 Points from two online sources ( and The period 1830 to 1910 Based on location of artistic movements Stylistic movements

Methodology Multivariate Regression Analysis Ordinary least squares Relates Y to a series of independent X’s Price = F(deathage, complage, paintage, auctrecs, paintrecs, dasold, mosold, yearsold, size, lowestm, highestm, newyork, lotno, reprodpg, espress, preraph, symbol, aesthetc, impress, signed, dated, nethrlnd, france, england, norway, austria)

Results and Analysis

Price= -2.2E * PAINTAGE * DEATHAGE * YRSOLD SIZE +.83 * HIGHESTM * EXPRESS * PRERAPH * AESTHETC T-Statistics Less than impressive What does that mean? Multicollinearity- within age variables and estimates R-Squared.958 Is that a good thing?

Conclusions Significant Variables Style Age of the artist at his death High presale estimate Search for market inefficiencies is elusive at best High presale estimate Variables that outperform the market

Limitations Repeat sales information not available Subject matter, condition are not included Expansions Larger data set Additional variables Accuracy and influence of presale estimates