Volatility of price indices for heterogeneous goods
Price indices for heterogenous goods such as real estate or fine art constitute crucial information for institutional or private investors considering alternative investments in times of financial markets turmoil. Classical mean-variance analysis of alternative investments has been hampered by the lack of a systematic treatment of volatility in these markets. This may seem surprising as derivatives on subsets of the traded goods require a precise modelling and estimation of the underlying volatility. For example, in art markets, auction houses often give price guarantees to the seller that resemble put options. In this paper we propose a hedonic regression framework which explicitly defines an underlying stochastic process for the price index, allowing to treat the volatility parameter as the object of interest. The model can be estimated using maximum likelihood in combination with the Kalman filter. We derive theoretical properties of the volatility estimator and show that it outperforms the standard estimator. We show that extensions to allow for time-varying volatility are straightforward using a local-likelihood approach. In an application to a large data set of international blue chip artists, we show that volatility of the art market, although generally lower than that of financial markets, has risen over the last years and, in particular, during the recent European debt crisis.
|Date of creation:||May 2012|
|Contact details of provider:|| Postal: Spandauer Str. 1,10178 Berlin|
Web page: http://sfb649.wiwi.hu-berlin.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert F. Engle & Jose Gonzalo Rangel, 2008. "The Spline-GARCH Model for Low-Frequency Volatility and Its Global Macroeconomic Causes," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1187-1222, May.
- Kathryn Graddy & Philip E. Margolis, 2011.
"Fiddling With Value: Violins As An Investment?,"
Western Economic Association International, vol. 49(4), pages 1083-1097, October.
- Graddy, Kathryn & Margolis, Philip, 2007. "Fiddling with Value: Violins as an Investment?," CEPR Discussion Papers 6583, C.E.P.R. Discussion Papers.
- Ginsburgh, Victor & Mei, Jianping & Moses, Michael, 2006. "The Computation of Prices Indices," Handbook of the Economics of Art and Culture, Elsevier.
- Antonello E. Scorcu & Roberto Zanola, 2010. "The ‘Right’ Price for Art Collectibles. A Quantile Hedonic Regression Investigation of Picasso Paintings," Working Paper Series 01_10, The Rimini Centre for Economic Analysis.
- McAndrew, Clare & Thompson, Rex, 2007. "The collateral value of fine art," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 589-607, March.
- Douglas Hodgson & Keith Vorkink, 2004. "Asset pricing theory and the valuation of Canadian paintings," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 629-655, August.
- Jianping Mei & Michael Moses, 2002. "Art as an Investment and the Underperformance of Masterpieces," American Economic Review, American Economic Association, vol. 92(5), pages 1656-1668, December.
- repec:ebl:ecbull:v:26:y:2006:i:3:p:1-13 is not listed on IDEAS
- Combris, Pierre & Lecocq, Sebastien & Visser, Michael, 1997. "Estimation for a Hedonic Price Equation for Bordeaux Wine: Does Quality Matter?," Economic Journal, Royal Economic Society, vol. 107(441), pages 390-402, March.
- Andrew M. Jones & Roberto Zanola, 2011. "Retransformation bias in the adjacent art price index," ACEI Working Paper Series AWP-01-2011, Association for Cultural Economics International, revised Jul 2011.
- Collins, Alan & Scorcu, Antonello & Zanola, Roberto, 2009. "Reconsidering hedonic art price indexes," Economics Letters, Elsevier, vol. 104(2), pages 57-60, August.
- Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291, April.
- Bocart, Fabian & Oosterlinck, Kim, 2011. "Discoveries of fakes: Their impact on the art market," Economics Letters, Elsevier, vol. 113(2), pages 124-126.
- Fabien Bocart & Kim Oosterlinck, 2011. "Discoveries of Fakes: their Impact on the Art Market," ULB Institutional Repository 2013/142704, ULB -- Universite Libre de Bruxelles.
- Fabien Bocart & Kim Oosterlinck, 2011. "Discoveries of fakes: their impact on the art market," Working Papers CEB 11-023, ULB -- Universite Libre de Bruxelles.
- 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 1370-1376, December.
- Goetzmann, William Nelson, 1992. "The Accuracy of Real Estate Indices: Repeat Sale Estimators," The Journal of Real Estate Finance and Economics, Springer, vol. 5(1), pages 5-53, March.
- Goetzmann, W.N., 1990. "The Accuracy Of Real Estimate Indices: Repeat Sale Estimators," Papers fb-_90-17, Columbia - Graduate School of Business.
- Chanel, O. & Gerard, L.A. & Ginsburgh, V., 1992. "The Relevence of Hedonic Price Indices the Case of Paintings," G.R.E.Q.A.M. 92a19, Universite Aix-Marseille III.
- Olivier Chanel & Louis-André Gérard-Varet & Victor Ginsburgh, 1996. "The relevance of hedonic price indices: the case of paintings," ULB Institutional Repository 2013/1715, ULB -- Universite Libre de Bruxelles.
- Pesando, James E, 1993. "Art as an Investment: The Market for Modern Prints," American Economic Review, American Economic Association, vol. 83(5), pages 1075-1089, December.
- Schulz, Rainer & Werwatz, Axel, 2001. "A state space model for Berlin house prices," SFB 373 Discussion Papers 2001,58, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Dorsey, Robert E. & Hu, Haixin & Mayer, Walter J. & Wang, Hui-chen, 2010. "Hedonic versus repeat-sales housing price indexes for measuring the recent boom-bust cycle," Journal of Housing Economics, Elsevier, vol. 19(2), pages 75-93, June.
- Erdal Atukeren & Aylin Seçkin, 2006. "Art and the Economy: A First Look at the Market for Paintings in Turkey," Economics Bulletin, AccessEcon, vol. 26(3), pages 1-13.
- Gouriéroux, Christian & Laferrère, Anne, 2009. "Managing hedonic housing price indexes: The French experience," Journal of Housing Economics, Elsevier, vol. 18(3), pages 206-213, September.
- Eric A. Greenleaf & Ambar G. Rao & Atanu R. Sinha, 1993. "Guarantees in Auctions: The Auction House as Negotiator and Managerial Decision Maker," Management Science, INFORMS, vol. 39(9), pages 1130-1145, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2012-039. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team)
If references are entirely missing, you can add them using this form.