Alternative Investment in Art Assets

• Thesis title in Czech: Alternativní investice do uměleckého majetku
• Thesis title in English: Alternative Investment in Art Assets
• English key words: alternative investment, art assets, trading, price indexes
• Academic year of topic announcement: 2019/2020
• Thesis type: diploma thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: prof. Roman Horváth, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 02.08.2020
• Date of assignment: 02.08.2020
• Date and time of defence: 21.09.2023 09:00
• Venue of defence: Opletalova, O105, místnost č. 105
• Date of electronic submission: 28.07.2023
• Date of proceeded defence: 21.09.2023
• Opponents: RNDr. Michal Červinka, Ph.D.

References

1. Art Trading Fund (ATF), 2007, Art Trading Fund Investor Report, August-October, 2007
2. Baumol, W, 1986, “Unnatural Value: Or Art Investment as a Floating Crap Game.” American Economic Review, 76: 10-14
3. Douglas, S, 2008, Larry Gagosian, Intelligent Life, The Economist, vol.1, issue 3, Spring, pp. 100-107.
4. Eckstein, J, 2006, “Treating Art as an Asset Class,” Investing in Art, Jeremy Eckstein, and Associates, London
5. Frey, B, 2003 “Art Markets and Economics: Introduction,” University of Zurich, Journal of Cultural Economics, Vol. 21, 2003
6. Frey, B. and R. Eichenberger, 1995, “On the Return of Art Investment Return Analyses,” Journal of Cultural Economics, 19, 207-220
7. Grant, D, 2006, “Art investment companies begin to make a purchase,” Main Antique Digest, September 20th, 2006
8. Groysberg, B, Podolny, J, Keller, T, 2006, “Fernwood Art Investments: Leading in an imperfect marketplace,” Harvard Business School Publishing, Cambridge, M.A., 2006
9. Mei, J.P and Moses, 2002, M, “Art as an Investment and the Underperformance of Masterpieces,” American Economic Review, December 2002.
10. Merrill Lynch/Cap Gemini and Ernst & Young, 2006 “The World Wealth Report,” New York, NY
11. Palmeri, C, 2007, “The Artful Investor. New research calls art a smart investment, but skeptics point to high costs and high risk”, Business Week, March 12th, 2007
12. William Goetzmann, Luc Renneboog, 2011 “Art and Money”. American Economic Review, 2011, Vol. 101, No. 3
13. Chanel, O. (1995): “Is art market behavior predictable?” European Economic Review 39(3-4): pp. 519–527.
14. Ursprung, H. & C. Wiermann (2008): “Reputation, Price, and Death: An Empirical Analysis of Art Price Formation.” CESifo Working Paper Series 2237, CESifo Group Munich.
15. Chambers, David, and Dimson, Elroy and Spaenjers, Christophe, Art as an Asset: Evidence from Keynes the Collector (October 5, 2019).

Preliminary scope of work in English

Introduction

Art is not only appreciated for the aesthetic value it has but as a form of investment as well. recent trends have shown that the prices fetched or commanded by various pieces of art have significantly increased (Frey and Eichenberger, 1995). This significant increase in prices points towards the alluring nature of the investment in art. The industry has witnessed a growth in its worth and annual turnover, i.e U.S. $30 billion (ATF, 2007). From its indices, the “Mei Moses All Art Index”, and the “Art Market Research”, it is clear that the returns, when compared to stock markets, are equally as profitable.

Literature review

The uncertainty that has plunged into the stock markets, as well as an economy that is slowing down, has pushed persons or organizations that are high net worth to seek different investment avenues. Art as an investment stands out ahead of the rest owing to the following significant characteristics (Palmeri, 2007): 1) art has witnessed sustainable demand, 2) there is a limited supply, 3) over time, it has proven to endure or withstand various economic downturns.
The art market consists of both main and subsidiary markets. While the main market deals in contemporary art, the secondary market is vested in resales and handles art that is mostly ancient and modern. The artists whose arts feature in the secondary market are usually decreased (Baumol, 1986). Contemporary art refers to art done for the first time, and whose artists are still alive. The main challenge with the secondary market is that the quality arts available for sale are limited. With regards to primary markets, the cost or value of the art is often uncertain and mostly relies on trying to promote the artists (Taylor, 2007). As such, it is difficult to estimate the potential returns of them.
As an oligopoly, the sale of art is determined and managed the most influential auction houses. They limit the amount of artists or art that makes its way into the market through the auction route. Artistic works are usually unique. The value one attaches to the product depends on the taste of the dealer (Merrill et al., 2006). The competition in the industry is quite high and intense. The hurdles that ought to be handled before entry into the market, such as fixed costs, are quite high.
Furthermore, costs are incurred through the commissioning of the artists, making advertisements, offering insurance cover, and the distribution of the art after purchase. The market justifies the high costs since it is hard to liquidate the existing assets (Douglas, 2008). The competition in the industry is based on how unique the artwork is, and not on the price.

Hypothesis:
How alternative investment perform vis a vis increased financial uncertainty in different markets?
Alternative investment performance during the crisis
Market uncertainty regarding the alternative investment in art

Methodology

In order to investigate the impact of the alternative investment of art assets in the economy. To observe the relationship of it in the market time-series pattern is going to be used by taking yearly data of the 20th century for a cointegration model to see the investment outcomes. The application of the Johansen test for the cointegration model has feasible advantages among which is the fact that allows us to use large samples. The analysis would concentrate on the relevant determinants of art prices that are chosen based on previous studies made for this type of topic. The market index would be used to demonstrate that the equity returns of the market have had a significant impact on the level of price in the art market over the 20th century (William Goetzmann and Luc Renneboog, 2011). To build the art price indexes in the long run there will be needed the auction sales data collected by Gerard Reitlinger (1961). As a proxy of resource abundance would be the US Bureau of Labour Statistics overtime on the price indexes of art. Art is shown to be an investment opportunity but on the other hand, it is also risky subject to a study analysis in times of death effects in relationships within the financial and the art market (Chanel 1995). The death effect which affects the prices is described in detail by Ursprung & Wiermann (2008) using the hedonic art price regression. As a proxy of resource abundance would be the US Bureau of Labor Statistics overtime on the price indexes of art. Art is shown to be an investment opportunity but on the other hand, it is also risky subject to a study analysis in times of death effects in relationships within the financial and the art market (Chanel 1995). The death effect which affects the prices is described in detail by Ursprung & Wiermann (2008) using the hedonic art price regression. As a proxy of resource abundance would be the US Bureau of Labour Statistics overtime on the price indexes of art. Art is shown to be an investment opportunity but on the other hand, it is also risky subject to a study analysis in times of death effects in relationships within the financial and the art market (Chanel 1995). The death effect which affects the prices is described in detail by Ursprung & Wiermann (2008) using the hedonic art price regression. Among the main data sources are the USA Bureau of Labor Statistics, Christophe Spaenjers published papers.

Expected Contribution
The production of art relies on creativity, whereas its consumption relies on the interpretation one attaches to it. Dealers often control the whole process of valuation and purchase (Grant, 2006). Owing to the need to maintain credibility and a good reputation in the market, dealers often reinvest in the market. They end up limiting the supplies and maintaining the high art valuation.

Outline:
1. Introduction
2. Theory and Literature Review
3. Empirical Investigation
4. Results
5. Conclusion
References