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Art market inefficiency
Abstract
Art is often used as an investment vehicle. Given the importance of market efficiency in finance, we use a large auction-based index to test whether the art market is weakly efficient. Evidence reveals that returns on artworks exhibit high positive auto-correlation. We attribute this result to price truncation resulting from unobservable reserve prices in auctions. We conclude that the art market is not efficient, mainly because price formation is opaque to outsiders who lack information on unsold artworks.
... This paper seeks to discover whether art is a good way to diversify an investment portfolio by analysing the Citadel art price index in relation to movement of the FTSE/JSE All share index, the ABSA house price index, and the South African government bond index. In addition, given the structure of art markets and the higher risk implications of insider information often present on reserve prices (David, Oosterlinck & Szafarz, 2013), the paper also explores whether South African art prices are efficient. ...
... In an efficient market, prices reflect all available information, making future returns unpredictable. However, as David et al. (2013) point out, art returns calculated from an index of art auction prices certainly do not reflect all available information. This is because the seller fixes a reserve price, which only the seller and the auctioneer know. ...
... If the art work does not reach the reserve price, the work is reported as unsold and this information is not incorporated into the index. Using a large database with more than a million observations, David et al. (2013) use four tests to assess the weak form of efficiency in the art market. Results show that the art market is not even weakly efficient, since net returns are highly auto-correlated. ...
Art has been suggested as a good way to diversify investment portfolios during times of financial uncertainty. The argument is that art exhibits different risk and return characteristics to conventional investments in other asset classes. The new Citadel art price index offered the opportunity to test this theory in the South African context. Moreover, this paper tests whether art prices are efficient. The Citadel index uses the hedonic regression method with observations drawn from the top 100, 50 and 20 artists by sales volume, giving approximately 29 503 total auction observations. The Index consists of quarterly data from the period 2000Q1 to 2013Q3. A vector autoregression of the art price index, Johannesburg stock exchange all-share index, house price index, and South African government bond index were used. Results show that, when there are increased returns on the stock market in a preceding period and wealth increases, there is a change in the Citadel art price index in the same direction. No significant difference was found between the house price index and the art price index, or between the art and government bond price indices. The art market is also found to be inefficient, thereby exacerbating the risk of investing in art. Overall, the South African art market does not offer the opportunity to diversify portfolios dominated by either property, bonds, or shares.
... In addition, it was highlighted that by using variance-ratio tests to show that US art auction prices did not follow a 'random walk' over an extended period between1875 and 1945. It was also shown that US art auction prices followed a series of 'random walks' from 1945 onwards (David et al., 2013). In another study by Erdos and Ormos (2010) using the sample period from 1875 to 2008, there was no evidence for or against a pure 'random walk' hypothesis, yet there was evidence of possible structural breaks. ...
... According to David et al. (2013) and Dimson & Mussavian (2000), the 'efficient market hypothesis' as proposed by Paul Samuelson in the mid 1960's, is a cornerstone of research in finance. Within this paradigm, markets are considered to be efficient if prices reflect all the information available to the market, or, in other words, a market in which all relevant information is impounded into the price of financial assets (Dimson & Mussavian, 2000). ...
... proposes that prices reflect all available information, both public and private and that prices instantly reflect hidden or "insider" information. In this strong form, market efficiency is a key factor for investors since it gives investors' confidence in the fairness of market valuation (David et al., 2013). ...
This research takes an in-depth approach, to analysing the relationship between the price for 'Fine Art' that is acquired in the secondary art market and the return to an investor who invests in 'Fine Art' in the primary art market. The approach taken is to understand the concepts of ‘meaning’ and how this ‘meaning’ is interpreted from symbolic images. An analysis of the market for art and ‘shared value’ are explored pointing out that the market for 'Fine Art' is highly inefficient and besieged by pricing rigidities induced through informational constraints. Information is a key feature in determining the ‘real’ value for art, and the role of information in determining value and ultimately a price is explored within the pages of this text.
The 'Value of Information' is used to map the relationship that exists between the secondary art market and the primary art market, particularly the forward and backward transmission mechanisms between the two independent, yet interrelated markets.
Problems associated with a price index for art is examined, and the internationally accredited Artprice index is used to test the interrelationship between the art market and other key international indicators to better understand the construct of the investor who chooses to invest in art.
The research demonstrates that an investor who chooses to invest into 'Fine Art' is very different from one who chooses to invest in the stock market. While an investor may choose to invest in either or both of the markets, the decision-making process involved in investing in 'Fine Art' is different from the decision-making process of investing into the stock market. The findings of this research suggest that an in-depth assessment of the decision-making process of the investor should be built into the pricing index for 'Fine Art' so as to better capture the fundamentals of the art market and thus improve on the efficiency of an art price index.
... Because cultural products are not heterogeneous, the market is not efficient, despite the large number of buyers and sellers. David et al. (2013) stressed the importance of understanding the role of information in the decision-making process when purchasing 'Fine Art'. Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. ...
... Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. David et al. (2013) mentioned that efficiency because of profound data limitations is near impossible to test. Furthermore, 'prices' for 'Fine Art' did not follow a simple random walk hypothesis, implying that, there is order and structure within the creative industries. ...
... However, it was also shown that US art auction prices followed a series of 'random walks' over short time intervals, starting from 1945 onwards. (David et al. 2013). This could imply that there are varying degrees of relevance associated with job creation within the creative industry. ...
... Because cultural products are not heterogeneous, the market is not efficient, despite the large number of buyers and sellers. David et al. (2013) stressed the importance of understanding the role of information in the decision-making process when purchasing 'Fine Art'. Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. ...
... Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. David et al. (2013) mentioned that efficiency because of profound data limitations is near impossible to test. Furthermore, 'prices' for 'Fine Art' did not follow a simple random walk hypothesis, implying that, there is order and structure within the creative industries. ...
... However, it was also shown that US art auction prices followed a series of 'random walks' over short time intervals, starting from 1945 onwards. (David et al. 2013). This could imply that there are varying degrees of relevance associated with job creation within the creative industry. ...
... Because cultural products are not heterogeneous, the market is not efficient, despite the large number of buyers and sellers. David et al. (2013) stressed the importance of understanding the role of information in the decision-making process when purchasing 'Fine Art'. Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. ...
... Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. David et al. (2013) mentioned that efficiency because of profound data limitations is near impossible to test. Furthermore, 'prices' for 'Fine Art' did not follow a simple random walk hypothesis, implying that, there is order and structure within the creative industries. ...
... However, it was also shown that US art auction prices followed a series of 'random walks' over short time intervals, starting from 1945 onwards. (David et al. 2013). This could imply that there are varying degrees of relevance associated with job creation within the creative industry. ...
... Because cultural products are not heterogeneous, the market is not efficient, despite the large number of buyers and sellers. David et al. (2013) stressed the importance of understanding the role of information in the decision-making process when purchasing 'Fine Art'. Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. ...
... Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. David et al. (2013) mentioned that efficiency because of profound data limitations is near impossible to test. Furthermore, 'prices' for 'Fine Art' did not follow a simple random walk hypothesis, implying that, there is order and structure within the creative industries. ...
... However, it was also shown that US art auction prices followed a series of 'random walks' over short time intervals, starting from 1945 onwards. (David et al. 2013). This could imply that there are varying degrees of relevance associated with job creation within the creative industry. ...
This chapter presents the findings of the work of the Centre for Sustainable, Healthy and Learning Cities and Neighbourhoods (SHLC) that is funded via UK Research and Innovation as part of the UK Government’s Global Challenges Research Fund (GCRF). The chapter is based on case study research conducted in two cities in each of the seven countries in the Global South. The cities are Cape Town and Johannesburg (South Africa), Dar es Salaam and Dodoma (Tanzania), Kigali and Huye (Rwanda), Delhi and Madurai (India), Dhaka and Khulna (Bangladesh), Chongqing and Datong (China) and Manila and Batangas (Philippines). Based on an analysis of data drawn from planning and urban development policy documents in the respective countries over the last two decades, the case studies identify key ideas and policies that have shaped the delivery of public services, especially education and health care. The chapter focuses on four themes: urban inequalities, urban planning policies, understanding health and well-being and learning cities.
... Because cultural products are not heterogeneous, the market is not efficient, despite the large number of buyers and sellers. David et al. (2013) stressed the importance of understanding the role of information in the decision-making process when purchasing 'Fine Art'. Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. ...
... Most profound is the concept that the sale of 'Fine Art' may seem to discredit the law of 'one price', since there are cases where similar artworks fetched dramatically different prices when sold in different places. David et al. (2013) mentioned that efficiency because of profound data limitations is near impossible to test. Furthermore, 'prices' for 'Fine Art' did not follow a simple random walk hypothesis, implying that, there is order and structure within the creative industries. ...
... However, it was also shown that US art auction prices followed a series of 'random walks' over short time intervals, starting from 1945 onwards. (David et al. 2013). This could imply that there are varying degrees of relevance associated with job creation within the creative industry. ...
... useNft, 19 nft_ptr 20 ), and projects foregrounding technical innovations (e.g. NFT Replicas, 21 bing.ly reverse NFT search 22 ) Interestingly, there are comparatively few references to devs in other media, outside of hacking incidents [67,76] and in relation to startups and corporations. ...
... According to our data and our preliminary research on the structure and power relations in art markets [21,60,65,82], it appears that a significant proportion of the financial value in the NFT market arises from the participation of auction houses like Christie's [61] and Sotheby's [37]. These actors present as authorities and arbiters of legitimacy, with strong direct influence on the pricing of artworks, as well as indirect influence on the demand side of the market via well-endowed sales and marketing tactics. ...
... In times of economic instability, investors often turn to the art market as a reliable way to preserve and grow capital. Financial and economic crises become an impetus for investing in non-traditional instruments, which include works of art (David et al., 2013;Guo et al., 2024). ...
The article conducts a comprehensive study of the global art market, highlighting its key development trends. It is substantiated that successful investments depend on such factors as the artist’s reputation, uniqueness of artwork, market trends, and historical value. The research utilizes quantitative and qualitative research methods. The key art indices are analyzed to track the performance of the global art market, helping investors to understand the general tendencies and volatility of this type of investment. It is proved that the art market is characterized by volatility and dependence on macroeconomic changes. In particular, in 2020- 2024, the market showed both ups and downs, with a gradual recovery in 2025. Despite the risks, art remains an attractive option for diversifying an investment portfolio, especially for collectors and investors interested in long-term profit.
... Previous research has highlighted lower returns and higher volatility for the broader art market (Baumol, 1986;Frey and Pommerehne, 1989;Mei and Moses, 2002;Goetzmann, 1993;Renneboog and Spaenjers, 2013;David et al., 2013). Despite this, blue-chip art, with its stable long-term value and strong market presence, remains underexplored in this area. ...
This paper presents a novel approach to evaluating blue-chip art as a viable asset class for portfolio diversification. We present the Arte-Blue Chip Index, an index that tracks 100 top-performing artists based on 81,891 public transactions from 157 artists across 584 auction houses over the period 1990 to 2024. By comparing blue-chip art price trends with stock market fluctuations, our index provides insights into the risk and return profile of blue-chip art investments. Our analysis demonstrates that a 20% allocation of blue-chip art in a diversified portfolio enhances risk-adjusted returns by around 20%, while maintaining volatility levels similar to the S&P 500.
... The art market has attracted significant interest for a variety of reasons, reflecting its unique blend of cultural, economic, and social factors (Schönfeld and Reinstaller 2007;David et al 2013). Artwork transactions take place through various channels, such as art galleries, online art marketplaces, and auctions (Ashenfelter and Graddy 2003). ...
Considerable research has been devoted to understanding the popularity effect on the art market dynamics, meaning that artworks by popular artists tend to have high prices. The hedonic pricing model has employed artists’ reputation attributes, such as survey results, to understand the popularity effect, but the reputation attributes are constant and not properly defined at the point of artwork sales. Moreover, the artist’s ability has been measured via random effect in the hedonic model, which fails to reflect ability changes. To remedy these problems, we present a method to define the popularity measure using the artwork sales dataset without relying on the artist’s reputation attributes. Also, we propose a novel pricing model to appropriately infer the time-dependent artist’s abilities using the presented popularity measure. An inference algorithm is presented using the EM algorithm and Gibbs sampling to estimate model parameters and artist abilities. We use the Artnet dataset to investigate the size of the rich-get-richer effect and the variables affecting artwork prices in real-world art market dynamics. We further conduct inferences about artists’ abilities under the popularity effect and examine how ability changes over time for various artists with remarkable interpretations.
... The following findings suggest that in the art market, prices do not fully reflect all available information, thereby offering opportunities for speculators to capitalize on predictable momentum trends (see Figure 2 and 3). In general, numerous studies have explored the relations between stock market performance and art market trends (such as Baumol 1986;Quattrocchi and Strati 2014;Chanel 1995;Mandel 2009;Renneboog and Spaenjers 2012;David, Oosterlinck, and Szafarz 2013;Charlin and Cifuentes 2017a;Higgs and Andrew C. 2004), the relationship between wealth and art prices (Goetzmann, Renneboog, and Spaenjers 2011;Goetzmann 1993) as well as the technical definition of art market returns (Charlin and Cifuentes 2017b;Bocart, Ghysels, and Hafner 2020). However, results regarding efficiency in the art market remain diverse (see Çevik, Atukeren, and Korkmaz 2013, Kra ussl, Lehnert, and Martelin 2016, Aye et al. 2017, Assaf et al. 2021, Pe nasse and Renneboog 2022. ...
I investigate the presence of time series momentum in the market of five highly rated living artists by considering a different approach that follows a pure investment purpose: Is this index investable? I shall test for time series predictability and then examine the profitability of two different trading strategies: speculative and passive.
... In general, the literature views artworks at best as a relatively mediocre investment vehicle. This view is strengthened by the fact that the art market is informationally inefficient (David et al. 2013). David et al. (2021) find the British art market to be negatively affected by crises, suggesting that investments in artworks may not be useful even in times of crisis. ...
This paper investigates quantitatively the evolution of the German art market between 1937 and 1944. During the war, the boom observed in occupied countries offers a sharp contrast with the price evolution in the United Kingdom. Did the German art market show more similarities with the countries it was occupying or was its evolution closer to the British one? Our results show that the German art market underwent a boom during the war. Beyond the historical interest in the art market, this analysis also speaks to the larger debates on wartime economies and of artworks as wartime investments.
... Intermediaries, such as auction houses, dealers and consultants are active mostly in the secondary market of resales (Khaire, 2017). The art market has many peculiarities and outstanding limitations, one of which is that it severely lacks in transparency : some see the presence of information asymmetries as the main cause of limited efficiency in the art market (David et al., 2013;Day, 2014). The attribution, provenance, authenticity, and even copyright of an artwork is often unclear, and this plays a significant role in its ultimate pricing (Cooper, 2018). ...
Non-Fungible Tokens (NFTs) have recently surged to mainstream attention by allowing the exchange of digital assets via blockchains. NFTs have also been adopted by artists to sell digital art. One of the promises of NFTs is broadening participation to the art market, a traditionally closed and opaque system, to sustain a wider and more diverse set of artists and collectors. A key sign of this effect would be the disappearance or at least reduction in importance of seller-buyer preferential ties, whereby the success of an artist is strongly dependent on the patronage of a single collector. We investigate NFT art seller-buyer networks considering several galleries and a large set of nearly 40,000 sales for over 230 M USD in total volume. We find that NFT art is a highly concentrated market driven by few successful sellers and even fewer systematic buyers. High concentration is present in both the number of sales and, even more strongly, in their priced volume. Furthermore, we show that, while a broader-participation market was present in the early phase of NFT art adoption, preferential ties have dominated during market growth, peak and recent decline. We consistently find that the top buyer accounts on average for over 80% of buys for a given seller. Similar trends apply to buyers and their top seller. We conclude that NFT art constitutes, at the present, a highly concentrated market driven by preferential seller-buyer ties.
... In fact, this is a form of information asymmetry preventing potential buyers from entering the market. David, Oosterlinck, and Szafarz (2013) argue that the art market is inherently inefficient due to the information asymmetry -namely, the lack of information about unsold artworks. The last one (social capital) is actually not a requirement per se, but it is tightly coupled with cultural capital. ...
This thesis examines buyers' preferences and price determinants in the Polish art market regarding paintings, with a focus on the colours of the paintings and their influence on the price. The full-text is available here: https://www.wbc.poznan.pl/dlibra/publication/609909/edition/517564/content
... This is surely right, if perhaps something of an understatement. While there has long been a thriving art market, since at least the 1960s the artworld became more commercialized, and today art is often regarded as an investment vehicle (David et al., 2013). As Joy and Sherry (2003) put it, [w]hile most art has almost always had a market, as a trend accelerating in the late 1970s and especially in the 1980s, the art world (artists, art critics, historians and curators) conflated with the art market (art dealers, art galleries, auction houses and, by implication, the stock market). ...
This paper attempts to show how Adorno's thought can illuminate our reflections on the future of work. It does so by situating Adorno's conception of genuine activity in relation to his negativist critical epistemology and his subtle account of the distinction between true and false needs. What emerges is an understanding of work that can guide our aspirations for the future of work, and one we illustrate via discussions of creative work and care work. These are types of work which cater to persistent human needs, albeit ones that are distorted under present social conditions. Adorno's thought helps us to understand why this is the case.
... Intermediaries, such as auction houses, dealers and consultants are active mostly in the secondary market of re-sales [50]. The arts market has many peculiarities and outstanding limitations, one of which is that it severely lacks in transparency [88]: some see the presence of information asymmetries as the main cause of limited efficiency in the arts market [20,21]. The attribution, provenance, authenticity, and even copyright of an artwork is often unclear, and this plays a significant role in its ultimate pricing [18]. ...
Non-Fungible Tokens (NFTs) have recently surged to mainstream attention by allowing the exchange of digital assets via blockchains. NFTs have also been adopted by artists to sell digital art. One of the promises of NFTs is broadening participation to the arts market, a traditionally closed and opaque system, to sustain a wider and more diverse set of artists and collectors. A key sign of this effect would be the disappearance or at least reduction in importance of seller-buyer preferential ties, whereby the success of an artist is strongly dependent on the patronage of a single collector. We investigate NFT art seller-buyer networks considering several galleries and a large set of nearly 40,000 sales for over 230M USD in total volume. We find that NFT art is a highly concentrated market driven by few successful sellers and even fewer systematic buyers. High concentration is present in both the number of sales and, even more strongly, in their priced volume. Furthermore, we show that, while a broader-participation market was present in the early phase of NFT art adoption, preferential ties have dominated during market growth, peak and recent decline. We consistently find that the top buyer accounts on average for over 80% of buys for a given seller. Similar trends apply to buyers and their top seller. We conclude that NFT art constitutes, at the present, a highly concentrated market driven by preferential seller-buyer ties.
... The volume and value of transactions in the international art market have been increasing over the years [1][2][3]. General interest in artworks has progressively increased in recognition of their financial and cultural value [4,5]. ...
The development of scientific technology for art authentication has elicited multidimensional evidence to distinguish forgeries from original artwork. Here, we analyzed the three-dimensional morphology of cracks that contain information, such as the painting features of artworks, using optical coherence tomography. The forgeries were produced by an expert from original oil paintings with cracks that occur owing to paint drying, canvas aging, and physical damage. Parameters, such as shape, width, and depth, were compared based on the cross-sectional images of the original and fake cracks. The original cracks were rectangular and inverted, but the fake cracks were relatively simple inverted triangles. The original cracks were as deep as the thickness of the upper layer and mostly were “thin/deep” or “wide/shallow”. The fake cracks were observed to be “’thin/shallow” or “wide/deep”. This study aims to improve the understanding of crack characteristics and promote the development of techniques for determining art authenticity.
... For this reason, it is no surprise that weak-form efficiency testing still is a highly active field in research (cf. Lim and Brooks, 2011, for a survey), which is also true for new or niche market segments, e.g. the art market (David et al., 2013;Aye et al., 2017), listed private equity (Tegtmeier, 2021), real estate investment trusts (Schindler, 2011) or crypto currencies (Urquhart, 2016). In the case of football stocks, to the best of the authors' knowledge, Ferreira et al. (2017) is the only study that analyzes market efficiency on a continuous basis. ...
Purpose
The purpose of this paper is to test the weak-form efficiency of listed European football stocks in the sample period 2012–2020.
Design/methodology/approach
Three powerful tests for randomness are performed, that is, autocorrelation of returns analysis via the Ljung and Box (1978) test, variance ratio test by Lo and MacKinlay (1988) and runs test (Wald and Wolfowitz, 1940).
Findings
Results are mixed. Autocorrelation analysis and variance ratio test reject the random walk hypothesis and are, therefore, in line with the findings of Ferreira et al. (2017). In contrast, the runs test only leads to rejection of the random walk hypothesis for five out of 20 football stocks. Interestingly, this applies to shares with the lowest trading volume.
Practical implications
The market for stakes in football clubs can be expected to continue to grow in the future. Thus, the issue whether the price signals derived from listed football clubs are reliable inputs when negotiating the price for a football club stake in a private transaction is of increasing importance.
Originality/value
This study complements, and partly challenges, the results of Ferreira et al. (2017), the only other study in this field, by applying other methods and analyzing a more recent sample period.
... Erdős and Ormos (2013) rejected the random walk hypothesis and identified great positive autocorrelations in fine wine returns. The positive autocorrelation of returns is confirmed by David et al. (2013). Bouri et al. (2017) illustrated that shock to the market is transitory and wine series tend to return to the mean; hence, they are predictable. ...
This paper explores price effects in the “passion investments” market after days with abnormal returns. To do this, daily prices for stamps and diamonds over the periods 1999–2021 and 1989–2021 are analyzed. The following hypothesis is tested: One-day abnormal returns create stable patterns in price behavior on the next day. Statistic tests (t-test, ANOVA, Mann–Whitney U test, modified cumulative abnormal returns approach, regression analysis with dummy variables) confirm the presence of price patterns related to extreme returns: price fluctuations on the day after extreme returns are higher than returns on “normal” days. On the days after positive abnormal returns, the momentum effect is detected. Contrarian effect is typical for the days after negative abnormal returns. A trading strategy based on detected price effects showed the presence of exploitable profit opportunities. Results of this paper provide additional pieces of evidence in favor of inconsistencies between the efficient market hypothesis and practice and can be used by traders to generate extra profits in the “passion investments” market.
Acknowledgment The authors gratefully acknowledge financial support from the Ministry of Education and Science of Ukraine (0121U100473).
... On the issue of cyclicality in visual art markets, see, for example,(David et al., 2013;Kräussl et al., 2016). ...
Liability rules a ect the incentives of intermediaries to disseminate and curate creative works, in particular when works build on the work of predecessors and they are potentially infringing copyright. In an application to the visual arts, we show that appropriation artists borrow images from di erent sources and incorporate them into new, derivative works of art. By doing so, they risk infringing copyright but also put commercial trade and availability of the work at litigation risk as liability can extend to intermediaries in markets (auction houses) or in public exhibitions (museums). Using a differences-in-differences model and unique data on the level of the individual artwork, we empirically investigate the impact of the prominent 2013 Cariou v. Prince U.S. court decision on trade and availability in Appropriation Art.
... The weak-form EMH has been examined substantially in the literature for many traditional financial assets (e.g., Lim and Brooks 2011;Zunino et al. 2012). Similar studies have been undertaken for alternative investments, such as real estate investment trusts (REITs) (e.g., Schindler et al. 2010;Schindler 2011), commodities (e.g., Kristoufek and Vosvrda 2014), bitcoin (e.g., Urquhart 2016), and art (e.g., David et al. 2013). However, weak-form efficiency within the meaning of Fama (1970) has not been investigated for the LPE markets. ...
This study is the first to investigate the efficient market hypothesis in its weak form and the random walk behaviour of globally listed private equity (LPE) markets represented by nine global, regional, and style indices based on weekly data covering the period from January 2004 to December 2020. Autocorrelation tests, variance ratio tests, and a non-parametric runs test are employed. The results of the autocorrelation tests and the variance ratio tests tend to correspond for all indices and reject the random walk hypothesis for the returns of all LPE indices under investigation. In contrast, the runs test for direct weak-form market efficiency cannot reject the null hypothesis of a random walk process for almost all LPE indices under investigation. Furthermore, there is no evidence that the market efficiency in globally listed private equity markets has improved after the global financial crisis. Due to the fact that the rapidly growing asset class of LPE as a form of private equity is still relatively unknown, the implications of the results of our paper are relevant for investors, policy makers, and academics alike. In addition, the results provide valuable insights to better understand the emerging asset class of LPE.
... However, the authors find little evidence of this market inefficiency. David et al. (2013) use the hedonic index built by Renneboog and Spaenjers (2013) which includes 1,088,709 sales of paintings and works on papers over the 1957-2007 period to test the market efficiency. The Ljung-Box test documents significant autocorrelation of order one in art market returns. ...
In this paper, we investigate the efficiency in the art markets, using a generalized spectral test (GST) in a rolling window approach to detect departure from the martingale difference hypothesis (MDH) and trace the periods of market efficiency over time. Then we complement our results using the approximate entropy, the rescaled range analysis, and fractal dimension. We combine the three measures in an Efficiency Index for each market. Applying these methods, we find that the Modern Art, Paintings, Post-war, Prints, the USA market, and the global market in Euro show the largest values for the Approximate Entropy. Using the rescaled range estimates, we find that all markets are characterized by persistent behavior and, then using the Efficiency Index, our results indicate overwhelming evidence of market inefficiency in almost all sectors. Finally, we support our findings with some explanation of the reasons behind market inefficiency, related to asymmetrical information, influential galleries power, and differentiated pieces and talents in the art markets.
... The existing research on alternative investments' market efficiency generally reports various forms of inefficiency, short-term return predictability, underreaction to relevant events and long-term memory is the most common efficient market hypothesis violations (David et al., 2013;Urquhart, 2016) and illiquidity of these assets cited as the most likely cause of such behaviour of alternative investments' returns (Wei, 2018). This leads to virtually all research in the field focussing on the long-term performance of the assets and portfolios comprising them. ...
Purpose
The purpose of this paper is to study LEGO sets as a potential alternative asset class. An exhaustive sample of 10,588 sets is used to generate inferences regarding long-term LEGO performance, its diversification benefits and return determinants.
Design/methodology/approach
LEGO set performance is studied in terms of equal- and value-weighted portfolios, sorts based on set characteristics and cross-sectional regressions.
Findings
Over 1966–2018, LEGO value-weighted index accounted for survivorship bias enjoys 1.20% inflation-adjusted return per annum, well below 5.54% for equities. However, the defensive properties of LEGO are considerable, as including 5%–25% of LEGO in a diversified portfolio is beneficial for investors with varying levels of risk aversion. LEGO secondary market is relatively internationalised, with investors from larger economies, countries with higher per capita incomes and less income inequality are shown to trade LEGO more actively.
Practical implications
LEGO investors derive non-pecuniary utility that is separable from their risk-return profile. LEGO is not exposed to any of the Fama-French factors, however, set-specific size and value effects are also well-pronounced on the LEGO market, with smaller sets and sets with lower price-to-piece ratio exhibiting higher yields. Older sets are also enjoying higher returns, demonstrating a liquidity effect.
Originality/value
This is the first study to investigate the investment properties of LEGO as an alternative asset class from micro- and macro-financial perspectives that overcomes many survivorship bias limitations prevalent in earlier research. LEGO trading is shown to be an important source of valuable data to enable original robustness checks for prominent theoretical concepts from asset pricing and behavioural finance literature.
... 1. Yet, alternative investment goods, such as artworks, deliver mixed financial results (David et al, 2013;Renneboog and Spaenjers, 2013 Figure A1 gives the daily number of BTC transactions over the sample period: January 2009-December 2013. Figure A2 draws the BTC/USD weekly exchange rate on a logarithmic scale. ...
Bitcoin (BTC) is a major virtual currency. Using weekly data over the 2010–2013 period, we analyze a BTC investment from the standpoint of a US investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, BTC investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that BTC investment offers significant diversification benefits. We show that the inclusion of even a small proportion of BTCs may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior that may not last in the medium or long run.
... Even monopolistic knowledge, including inside information from company owners, are reflected in the prices [16]. The weak form EMH has been examined substantially in the literature for many traditional financial assets as well as commodities [17] and even for art [18]. ...
... The existing research on alternative investments' market efficiency generally reports various forms of inefficiency, short-term return predictability, underreaction to relevant events and long-term memory is the most common efficient market hypothesis violations (David et al., 2013;Urquhart, 2016) and illiquidity of these assets cited as the most likely cause of such behaviour of alternative investments' returns (Wei, 2018). This leads to virtually all research in the field focussing on the long-term performance of the assets and portfolios comprising them. ...
In this article, LEGO sets are studied as a potential alternative asset class. An exhaustive sample of 10,588 sets is utilised to generate inferences regarding long-term LEGO performance, its diversification benefits, and return determinants. Over 1966-2018, LEGO value-weighted index accounted for survivorship bias enjoys 1.20% inflation-adjusted return per annum, well below 5.54% for equities. However, the defensive properties of LEGO are considerable, as including 5-25% of LEGO in a diversified portfolio is beneficial in terms of Sharpe ratio and certainty equivalent metrics for investors with varying levels of risk aversion. LEGO secondary market is relatively internationalised, with investors from 95 countries engaging in 90,000 transactions over a 6-month period, comprising total trading volume of $7.5 million. Larger economies, countries with higher per capita incomes and less income inequality are shown to trade LEGO more actively. There is evidence of LEGO investors deriving non-pecuniary utility from holding sets that is separable from their risk-return profile. LEGO is not exposed to any of the Fama-French factors, however, set-specific size and value effects are also well-pronounced on the LEGO market, with smaller sets and sets with lower price-to-piece ratio exhibiting higher yields. Older sets are also enjoying higher returns, demonstrating a liquidity effect.
... Also, efficient market hypothesis (EMH) implies the prices of securities fully reflect all possible and available information regarding securities being traded in the market thus under weak form of EMH prediction about prices and returnare not possible for any market participant. Previous researchers have substantially examined the weak form of EMH for stocks and bonds (traditional financial assets) as well as for commodities' markets (Kristoufek & Vosvrds, 2014) and even art (David, Oosterlinck, & Szafarz, 2013). But Bitcoin is explored by (Urquhart, 2016) who employ a battery of robust test and find returns from Bitcoin are inefficient in full-sample, however as he breaks the sample size into two equal sized sub-samples he finds returns are more efficient in the latter period. ...
The aim of the current study is to examine the varying degree of market efficiency of the Bitcoin market through AMH of (Lo, 2004). Due to investors' behavior and media in the recent years, Bitcoin has received much attention for investment purposes even though there remains a lack of understanding of this cryptocurrency. We divide our data into three equal sub-samples and employ a battery of linear and nonlinear
... But contrary to brand names, indirect names or provisional names, spatio-temporal designations present the disadvantage of not providing any specific information about the artist's reputation or most representative characteristics, and de facto no direct evidence of the quality of the works. When the artist name is missing, artistic quality and merit can thus hardly be assessed otherwise (Bonus and Ronte 1997), and for this reason, information failure contributes to art market inefficiency (David et al. 2013). ...
This paper explores the market for indeterminate works of art. Our data set includes 1578 sales of fifteenth and sixteenth-century anonymous Flemish paintings, mainly collected from the Blouin Art Sales Index over the period 1955–2015. After a brief introductory section to the issue of anonymity in early modern art, and the different situations of information failure generated by anonymous paintings, the empirical part examines the supply and demand for paintings by unrecorded artists, using a hedonic pricing model. We find evidence that the degree of specification of the spatio-temporal designations given to the paintings (e.g. Flemish school, sixteenth century) affect prices differently (H1). The more specific the designation is in time and space, the more it tends to make up for the lack of information, and to positively affect the market value of anonymous paintings. When the artist name is missing, we also argue that purchasers pay greater attention to other quality signals. Four other hypotheses, which are expected to influence the buyer’s willingness to pay, are successively tested: H2) the physical condition of the painting; H3) oral or written interventions by an expert; H4) the length of the lot essay; and H5) previous attributions to named artists. The results suggest that most of these variables operate as significant pricing characteristics. We finally compare price indices of named artists, indirect names and spatio-temporal designations.
The art marketing field is now undergoing active development towards its maximum potential. The aim of this study is to examine several topics, such as art marketing, the characteristics of art marketing, art marketing methodologies, the importance of art marketing, art marketing tactics, the relationship between digital art and art marketing, and the influence of digital transformation on art marketing. The primary objective of this study is to address the existing deficiency in the literature and encourage writers to conduct research on this topic. Despite the little research on art marketing and digital art, the main aim of this study is to fill this knowledge gap. This part of the inquiry receives considerable emphasis. It has been suggested that technologies such as virtual reality, augmented reality, artificial intelligence, and the metaverse, which are crucial for the advancement of digital art and digital art marketing, should be prioritized in art marketing. This conclusion was derived from the determination that these technologies warrant significance in the realm of art marketing.
This study examines the nonlinear dynamics in the price series of Chinese art market segments between 2000 and 2019. We employ a hedonic price model to construct price indices of Chinese art market segments and analyze the nonlinearities and regime-switching properties of the individual segment using a series of Markov switching model specifications. We argue that occasional shocks would only temporarily alter their data-generating processes and have transitory effects. Moreover, we investigate the impact of COVID-19 on Chinese art market segments. Our findings have implications for market participants in identifying the price characteristics and dynamic behavior of art market segments.
We contribute to the literature by studying the impact of economic policy uncertainty shocks on returns in the global art market, the global paintings market and the U.S.A art market from 1998:Q1 to 2018:Q3. Based on the frequency domain Granger causality test and continuous wavelets analysis, the results show that an increase in policy uncertainty shocks significantly reduces returns on art and paintings and that the effect is stronger during extreme volatility periods. Policy implications are derived at the end of the article
The purpose of the article: The art market becomes very popular among investors, when there is strong turbulence on the stock market. In times of calm, the art market is used by investors to diversify risk and build more efficient investment portfolios according to the Markovitz’s theory. The aim of this paper is to: (i) present the peculiarity of investment on the art market, represented by art market indexes in comparison to traditional investments in other financial market segments (money market, equity indexes and commodity market), (ii) to verify the hypothesis of normality of the distribution of rates of return of the analyzed art market indices as well as (iii) to analyze calendar effects occurrence on the art market.
Methodology: Comparison of rates of return on the stock, bond, commodity and money markets with rates on the art market in four different time intervals. For each of the analyzed periods, an income-risk map was presented, taking into account the spectrum of financial instruments, including six art indexes: Old Masters, 19th Century, Modern art, Post War art, Contemporary art and Global art. The hypothesis of normality of the distribution of rates of return of the art market indices for four analyzed periods was verified with the use of Jarque-Bera test.
Results of the research: Comparison of rates of return on the stock market and art market leads to the conclusion that their relationship depends on the period chosen. For two of the analyzed periods, the rates of return on the stock market were higher than on the art market, but for others periods, the opposite. The distribution of quarterly rates of return resulted to be a normal distribution for almost all of analyzed indices and time periods. Calendar effects were observed in the case of four analyzed indexes.
The hypothesis of a single deterministic price structure in the art market is unrealistic because of price dispersion, heterogeneity, limited information, and a lack of price transparency. Considerable price heterogeneity is associated with differences in quality; however, objective measurement of artistic quality is difficult, which reinforces the problem of lack of transparency in the art market. Applying finite mixture models to a sample of Surrealism paintings sold at auctions during 1990–2007, we test the hypothesis that the art market's lack of transparency is transferred to the art price system, which results in a fragmented market, characterized by the coexistence of different segments with various informational requirements, rules, and prices. Indeed, we find three distinct segments in the high end of the market, each with its own price structure. Furthermore, we identify a direct and an indirect effect on hammer prices exerted by the leading art auction houses.
The development of scientific technology for art authentication have elicited multidimensional evidence to distinguish forgeries from original artworks. Here, we analyzed three-dimensional morphology of cracks that contain information such as painting features of artworks using an optical coherence tomography (OCT). The forgeries were produced by an expert from the original oil paintings with cracks that occur as paint drying, canvas aging, and physical damage. The parameters such as shape, width, and depth were compared based on cross-sectional images of original and fake cracks. The shapes of original cracks were a rectangular and an inverted triangle, but fake cracks were a relatively simple inverted triangle. The original cracks were as deep as the thickness of the upper layer and mostly have ‘thin/deep' or 'wide/shallow'. The fake cracks were observed as 'thin/shallow' or 'wide/deep'. This study will improve the understanding of the crack characteristics and promote development of techniques for art authenticity.
The purpose of the article: The art market becomes very popular among investors, when there is strong turbulence on the stock market. In times of calm, the art market is used by investors to diversify risk and build more efficient investment portfolios according to the Markovitz’s theory. The aim of this paper is to: (i) present the peculiarity of investment on the art market, represented by art market indexes in comparison to traditional investments in other financial market segments (money market, equity indexes and commodity market), (ii) to verify the hypothesis of normality of the distribution of rates of return of the analyzed art market indices as well as (iii) to analyze calendar effects occurrence on the art market.
Methodology: Comparison of rates of return on the stock, bond, commodity and money markets with rates on the art market in four different time intervals. For each of the analyzed periods, an income-risk map was presented, taking into account the spectrum of financial instruments, including six art indexes: Old Masters, 19th Century, Modern art, Post War art, Contemporary art and Global art. The hypothesis of normality of the distribution of rates of return of the art market indices for four analyzed periods was verified with the use of Jarque-Bera test.
Results of the research: Comparison of rates of return on the stock market and art market leads to the conclusion that their relationship depends on the period chosen. For two of the analyzed periods, the rates of return on the stock market were higher than on the art market, but for others periods, the opposite. The distribution of quarterly rates of return resulted to be a normal distribution for almost all of analyzed indices and time periods. Calendar effects were observed in the case of four analyzed indexes.
We study the impact of the 1929 stock market crash on the Paris art market by creating a high-frequency index of artwork sales to measure the arrival of new investors seeking safe-havens. The results show that following the financial crash, the previously volatile art market becomes suddenly stable, suggesting a flight-to-safety from financial markets to the art market.
Research background: The dynamics of the art market are usually presented in terms of price fluctuations, price indexes and financial returns. This paper proposes the value and volume approach, which has not been considered in an aggregative way for a long time in the economic literature.
Purpose of the article: The aim of the paper is to present changes in the global art market in the period 2002–2015. The results of dynamic analysis of the art market are presented, including two approaches: value of transactions and volume of transactions. The impact of the global crisis on the art market is considered.
Methods: In order to present the changes on the global art market, statistical indexes of dynamics (single base and chain indexes) are used. Moreover, trend analyses have been conducted for the value and volume of transactions on the art market. The sources of data on the global art market are from Artprice, ArtTactic, and TEFAF (The European Fine Art Foundation).
Findings & Value added: In the analysed period of 2002–2015, sales on the global art market generally increased. The value and volume of sales peaked in 2007 and 2014. The art market was considerably affected by the economic recession in 2009, but in the next year it recovered. The trend analyses allow the changes on the market to be described by means of mathematical functions, and the countries with the largest share in the global art market can be identified. Particular attention has been paid to the existence of a triad on the art market consisting of Europe, the USA and China. It is noteworthy that Europe and the USA have rapidly lost market share to China.
The overall test for lack of fit in autoregressive-moving average models proposed by Box & Pierce (1970) is considered. It is shown that a substantially improved approximation results from a simple modification of this test. Some consideration is given to the power of such tests and their robustness when the innovations are nonnormal. Similar modifications in the overall tests used for transfer function-noise models are proposed
Although rank tests for randomness were proposed in the literature as early as 1943, no such test has gained wide acceptance comparable to, say, Spearman's rho test. This may be due to the lack of small-sample theory and of tables of critical values to enable such a test to be carried out on small samples. In this article, we consider the rank version of the von Neumann ratio statistic and we obtain the critical values of this statistic under the randomization hypothesis. In a Monte Carlo experiment we then show that the resulting nonparametric test for randomness has far greater power than the test based on the number of runs up and down. Moreover, under normality, its power vis-a-vis the normal theory von Neumann ratio test is also very good. It is therefore suggested that with the tables presented in this article, the rank von Neumann ratio test for randomness provides an easy and powerful alternative to nonparametric tests now in common use.
In this article we test the random walk hypothesis for weekly stock market returns by comparing variance estimators derived
from data sampled at different frequencies. The random walk model is strongly rejected for the entire sample period (1962–1985)
and for all subperiods for a variety of aggregate returns indexes and size-sorted portfolios. Although the rejections are
due largely to the behavior of small stocks, they cannot be attributed completely to the effects of infrequent trading or
time-varying volatilities. Moreover, the rejection of the random walk for weekly returns does not support a mean-reverting
model of asset prices.
[eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed with wide income spreads allocated among few consumers whereas the second one is highly populated however not as wealthy. Among the results, we show that a low transportation costs induces the firm to exploit size effects through locating in the most populated region. Moreover, a small transport cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. [fre] Cet article d�veloppe une statique comparative de l'impact de diff�rents sc�narios d'investissement (projet d'infrastructure conduisant � une baisse mod�r�e ou � une forte baisse du co�t de transport inter-r�gional) sur le choix de localisation d'une entreprise en situation de monopole, au sein d'un espace int�gr� compos� de deux r�gions aux populations et revenus h�t�rog�nes. La premi�re r�gion, faiblement peupl�e, pr�sente de fortes disparit�s de revenus, tandis que la seconde, plus homog�ne en termes de revenu, repr�sente un march� potentiel plus �tendu. On montre que l'h�t�rog�n�it� des revenus constitue la force dominante du mod�le lorsque le sc�nario d'investissement privil�gi� par les politiques publiques conduit � des gains substantiels du point de vue du co�t de transport entre les deux r�gions. L'effet de richesse, lorsqu'il est associ� � une forte disparit� des revenus, n'incite pas l'entreprise � exploiter son pouvoir de march� au d�triment de la r�gion l
This paper shows that before (after) fakes’ discoveries, artworks are less (more) likely to be sold through Sotheby’s or Christie’s. Prices only react negatively with a lag, suggesting that sellers try to postpone their sales as long as possible.
This paper investigates the price determinants and investment performance of art. We apply a hedonic regression analysis to a new data set of more than one million auction transactions of paintings and works on paper. Based on the resulting price index, we conclude that art has appreciated in value by a moderate 3.97% per year, in real U.S. dollar terms, between 1957 and 2007. This is a performance similar to that of corporate bonds—at much higher risk. A repeat-sales regression on a subset of the data demonstrates the robustness of our index. Next, quantile regressions document larger average price appreciations (and higher volatilities) in more expensive price brackets. We also find variation in historical returns across mediums and movements. Finally, we show that measures of high-income consumer confidence and art market sentiment predict art price trends.
This paper was accepted by Wei Xiong, finance.
This paper examines the relationship between sale rates and price shocks in art auctions. Using data on contemporary and impressionist art, we show that while sale rates appear to have little relationship to current prices, there exists a strong negative relationship of sale rates to unexpected price shocks, which is reminiscent of a Phillips curve. We estimate an empirical model that suggests that the reserve price is set on average at about 70% of the low estimate. © 2011 AEA. The American Economic Association is hosted by Vanderbilt University.
Art price indexes typically rely on heavily biased samples for several reasons. A refined hedonic index is developed which explicitly addresses such concerns. An empirical illustration is then provided for Symbolist paintings appearing at auctions between 1990 and 2001.
We perform variance ratio tests based on non-parametric methods to detect the size of the random walk component of the US art auction prices. The past 134 years of the US art prices exhibit large transitory component (72%) and based on this, the random walk hypothesis does not hold. However, possibly due to sparse data before 1935 or due to institutional changes of the art market after World War II, we detect structural breakpoints and find that the random walk hypothesis and the weak-form efficiency of the US art market cannot be rejected at least for the past 64 years.
Existing estimates of rates of return on single art objects and whole collections are surveyed and critically evaluated. The psychic benefits from art are, in the few cases they are considered at all, derived from the difference to financial returns on other markets. This paper discusses determinants of psychic benefits and suggests rental fees and willingness to pay studies as a possible way to analyze and estimate the psychic benefits from art.
Research on this project was supported by a grant from the National Science Foundation. I am indebted to Arthur Laffer, Robert Aliber, Ray Ball, Michael Jensen, James Lorie, Merton Miller, Charles Nelson, Richard Roll, William Taylor, and Ross Watts for their helpful comments.
Repeat sales of modern prints at auction are used to estimate a semiannual index of prices for the period 1977-92. As in other studies of art as an investment, prints do not compare favorably to traditional financial assets. There is substantial noise in auction prices but little or no support for the proposition that some artists command higher prices in certain countries or that masterpieces outperform the market. One puzzle is the continuing tendency for prices realized at certain auction houses to exceed those realized at others: notably, at Sotheby's relative to Christie's in New York. Copyright 1993 by American Economic Association.
This paper discusses the bias that results from using nonrandomly selected samples to estimate behavioral relationships as an ordinary specification error or "omitted variables" bias. A simple consistent two stage estimator is considered that enables analysts to utilize simple regression methods to estimate behavioral functions by least squares methods. The asymptotic distribution of the estimator is derived.
interview auctioneers, and even to buy a little wine.' In the meantime I have also had the opportunity (with John Abowd, 1988) to observe and collect data on the auction sale of impressionist and contemporary paintings. This paper reports on some of the empirical regularities that I and others have observed in the actual operation of the auction markets for these items. In view of the rich and diverse array of theoretical literature on auctions it seems high time economists began to spell out precisely what facts it is meant to explain.2
This paper constructs a new data set of repeated sales of artworks and estimates an annual index of art prices for the period 1875-2000. Contrary to earlier studies, we find art outperforms fixed income securities as an investment, though it significantly under-performs stocks in the US. Art is also found to have lower volatility and lower correlation with other assets, making it more attractive for portfolio diversification than discovered in earlier research. There is strong evidence of underperformance of masterpieces, meaning expensive paintings tend to under-perform the art market index. The evidence is mixed on whether the "law of one price" holds in the New York auction market.