Buying Beauty: On Prices and Returns in the Art Market

This paper investigates the evolution of prices and returns in the art market since the middle of the previous century. We first compile a comprehensive list of more than 10,000 artists and then build a dataset that contains information on more than 1.1 million auction sales of paintings, prints, and works on paper. We perform an extensive hedonic regression analysis that includes unique price-determining variables capturing amongst others: the artist’s reputation, the strength of the attribution to an artist, and the subject matter of the work. Based on the resulting price index, we conclude that art has appreciated in value by a moderate 4.03% per year, in real USD terms, between 1951 and 2007. During the art market boom period 2002-2007, prices augmented by 11.60% annually, which explains the increased attention to ‘art as an investment’. Furthermore, our results show that, over the last quarter of a century, prices of oil paintings and of post-war art have risen faster than the overall market. In contrast to earlier studies, we find evidence of a positive masterpiece effect: high-quality art makes a better investment. Our results are robust to alternative model specifications, and do not seem influenced by sample selection or survivorship biases. When comparing the long-term returns on art to those on financial assets, we find that art has underperformed stocks but outperformed bonds. However, between 1982 and 2007, bonds yielded higher average returns (at a lower risk) than art. Buyers of art should thus expect to reap non-pecuniary benefits rather than high financial returns, especially because the modest art returns are further diminished by substantial transaction costs.Art investments;Art market;Art returns;Auction prices;Hedonic regressions;Longterm stock returns;Long-term bond returns;Masterpiece effect

Ex-Post: The Investment Performance of Collectible Stamps

This paper investigates the returns on British collectible postage stamps over the very long run, based on stamp catalogue prices. Between 1900 and 2008, we find an annualized return on stamps of 6.7% in nominal terms, which is equivalent to an average real return of 2.7% per annum. Prices have increased much faster in the second half of the 1960s, the late 1970s, and the current decade. However, we also record prolonged periods of real depreciation, for example in the 1980s. As a financial investment, stamps have outperformed bonds, but underperformed stocks. After unsmoothing the returns on stamps, we find that the volatility of stamp prices approaches that of equities. There is mixed evidence that stamps are a good hedge against inflation. Once the problem of non-synchronous trading is taken into account, stamp returns seem impacted by movements in the equity market.Alternative investments;Indexes;Long-term returns;Market model;Stamps

The Iconic Boom in Modern Russian Art

This paper investigates the prices and the returns in the market for modern Russian art, a prime example of an ‘emerging art market’, over the last four decades. After applying a hedonic regression model on an extensive dataset containing 52,154 sales by 410 Russian artists, we show that the reputation of the artist, the strength of the attribution, and the topic of the work play important roles in the price formation of Russian art, in addition to characteristics such as size, medium and the identity of the auction house. We find a geometric average return of 4.07%, in real USD terms, between 1967 and 2007. Since 1997, however, our Russian art index shows an annualized return of 12.40%, which is roughly double the average yearly appreciation of a global art market index over the same period. Especially nineteenth century Russian art has generated high returns. Based on correlations and Granger causality tests, we conclude that the prices for Russian art are impacted by both Russian and global stock market movements. Our results illustrate how the new wealth created in fast-developing economies has its impact on the market for art from these countries.Alternative investments;Art;Auctions;Emerging markets;Hedonic regressions;Wealth

Where Angels Fear to Trade: The Role of Religion in Household Finance

Although the relationship between religion and economic development on the macro-level has been investigated, it is less clear how religious background influences economic attitudes and financial decision-making on the level of the individual or household, the micro-level. We use panel data from the extensive DNB Household Survey, covering the period from 1995 to 2008, to investigate whether – and through which channel – religious denomination affects household finance in the Netherlands. We find evidence that, in general, religious households care more about saving, are more risk-averse, consider themselves more trusting, have a more external locus of control, and have a stronger bequest motive. Furthermore, Catholics and Protestants have longer planning horizons, and Protestants and Evangelicals seem to have a greater sense of individual financial responsibility. Most of these factors matter for household financial decision-making, albeit to differing degrees. Using our religion variables as instruments for economic attitudes (and controlling for demographic and background risk characteristics), we demonstrate that the above-mentioned differences in economic beliefs and preferences explain the higher propensity to save by religious households in general and the lower investments in risky assets by Catholic households.Economic Attitudes;Culture;Religion;Household finance;Portfolio choice;Trust

Hard Assets: The Returns on Rare Diamonds and Gems

This paper examines the investment performance of diamonds and other gems (sapphires, rubies, and emeralds) over the period 1999-2010, using a novel data set of auction transactions. Between 1999 and 2010, the annualized real USD returns for white and colored diamonds equaled 6.4% and 2.9%, respectively. Since 2003, the returns were 10.0%, 5.5%, and 6.8% for white diamonds, colored diamonds, and other gems, respectively. Both white and colored diamonds outperformed the stock market over our time frame. Nevertheless, gem returns are positively correlated with stock market returns, suggesting the existence of stock market wealth effects.Auctions;Diamonds;Gems;Hedonic regressions;Alternative investments

Art and Money

This paper investigates the impact of equity markets and top incomes on art prices. Using a newly constructed art market index, we demonstrate that equity market returns have had a significant impact on the price level in the art market over the last two centuries. We also find empirical evidence that an increase in income inequality may lead to higher prices for art, in line with the results of a numerical simulation analysis. Finally, the results of Johansen cointegration tests strongly suggest the existence of a long-run relation between top incomes and art prices.Art market;Equities;Income inequality;Cointegration;Comovement

Where Angels Fear to Trade:The Role of Religion in Household Finance

Although the relationship between religion and economic development on the macro-level has been investigated, it is less clear how religious background influences economic attitudes and financial decision-making on the level of the individual or household, the micro-level. We use panel data from the extensive DNB Household Survey, covering the period from 1995 to 2008, to investigate whether - and through which channel - religious denomination affects household finance in the Netherlands. We find evidence that, in general, religious households care more about saving, are more risk-averse, consider themselves more trusting, have a more external locus of control, and have a stronger request motive. Furthermore, Catholics and Protestants have longer planning horizons, and Protestants and Evangelicals seem to have a greater sense of individual financial responsibility. Most of these factors matter for household financial decision-making, albeit to differing degrees. Using our religion variables as instruments for economic attitudes (and controlling for demographic and background risk characteristics), we demonstrate that the above-mentioned differences in economic beliefs and preferences explain the higher propensity to save by religious households in general and the lower investments in risky assets by Catholic households.