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Are Multiple Art Markets Rational?

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  • Leslie Singer
  • Gary Lynch
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    Abstract

    We advance and subsequently test the proposition thatmarkets for fine art are rational, namely, that, inthe determination of price, traders make use of allrelevant art historical and critical information, asrevealed by hedonic content analysis, as well as allinformation on authenticity of the works offered forsale. If true, the proposition has consequences forpublic policy. Museums optimize choices among art historicallysignificant authentic paintings distributed asstochastic rare events in the tertiary market for art. Such paintings have few, if any, art historicallyequivalent substitutes, causing the demand for suchworks of art to be extremely inelastic. Museums tendto buy at the top of the information curve; payingprices which exceed market averages for similar art. As a result, society pays the cost of institutionalrisk aversion. In contrast, collectors often purchaseart before all art historical information is complete,and often earn a reward for assuming a risk due toincomplete information (Singer, 1991; Pomerhene, 1994).Collectors who can borrow to accumulate the highestcategory art can consume the services of their artcollection at zero cost. Stochastic transferfunctions fitted to time series of sales volume at thetwo top international auction houses confirm thehypothesis that the highest category of art is a quasisubstitute for financial instruments (liquid wealth). Copyright Kluwer Academic Publishers 1997

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    File URL: http://hdl.handle.net/10.1023/A:1007447326729
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Cultural Economics.

    Volume (Year): 21 (1997)
    Issue (Month): 3 (September)
    Pages: 197-218

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    Handle: RePEc:kap:jculte:v:21:y:1997:i:3:p:197-218

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    Web page: http://www.springerlink.com/link.asp?id=100284

    Related research

    Keywords: rational art markets; hedonic content analysis; cointegration;

    References

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    1. Olivier Chanel & Louis-André Gérard-Varet & Victor Ginsburgh, 1996. "The relevance of hedonic price indices," Journal of Cultural Economics, Springer, vol. 20(1), pages 1-24, March.
    2. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
    3. Victor Ginsburgh & Philippe Jeanfils, 1995. "Long-term comovements in international markets for paintings," ULB Institutional Repository 2013/1717, ULB -- Universite Libre de Bruxelles.
    4. Goetzmann, William N, 1993. "Accounting for Taste: Art and the Financial Markets over Three Centuries," American Economic Review, American Economic Association, vol. 83(5), pages 1370-76, December.
    5. Pesando, James E, 1993. "Art as an Investment: The Market for Modern Prints," American Economic Review, American Economic Association, vol. 83(5), pages 1075-89, December.
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    Cited by:
    1. Bruno Frey, 1997. "Art Markets and Economics: Introduction," Journal of Cultural Economics, Springer, vol. 21(3), pages 165-173, September.
    2. Masaki Katsuura, 2012. "Lead–lag relationship between household cultural expenditures and business cycles," Journal of Cultural Economics, Springer, vol. 36(1), pages 49-65, February.
    3. Robert Ekelund & Rand Ressler & John Watson, 1998. "Estimates, Bias and “No Sales” in Latin-American Art Auctions, 1977–1996," Journal of Cultural Economics, Springer, vol. 22(1), pages 33-42, March.
    4. Nandini Srivastava & Stephen Satchell, 2012. "Are There Bubbles in the Art Market? The Detection of Bubbles when Fair Value is Unobservable," Birkbeck Working Papers in Economics and Finance 1209, Birkbeck, Department of Economics, Mathematics & Statistics.
    5. Fabian Bocart & Ken Bastiaensen & Peter Cauwels, 2011. "The 1980s Price Bubble on (Post) Impressionism," ACEI Working Paper Series AWP-03-2011, the Association for Cultural Economics International, revised Nov 2011.

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