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Are Multiple Art Markets Rational?

  • Leslie Singer
  • Gary Lynch
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    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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    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
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100284

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    1. 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.
    2. Ginsburgh, V. & Jeanfils, P., . "Long-term comovements in international markets for paintings," CORE Discussion Papers RP -1147, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
    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. Chanel, O. & Gérard-Varet, L.-A. & Ginsburgh, V., . "The relevance of hedonic price indices," CORE Discussion Papers RP -1222, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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