Categories Auction, El Valor del Arte, Investment, The value of the art

VARIABLES THAT DETERMINE THE AUCTION PRICE OF AN ARTWORK INVESTMENT

Extract of the conclusions in the research conducted by Almuneda Macías, Miguel Prado and María Alvarado, published in June 2016 on Researchgate.Net and communicated during XXX AEDEM Annual Meeting, Las Palmas de Gran Canaria in 2016.

Once the research is done, the first conclusion that must be highlighted is that alternative investments should be converted into relevant investment products under current market conditions. Due, in large part, to the high returns they present in all investment horizons. However, in recent years, these investments are not receiving all the trust they deserve from investors. This is due, to a large extent, to the fact that investors distrust all transactions that they do not know completely, and therefore can not reliably determine their risk for their interests. Due to this, it is intended to offer investors the necessary knowledge that will allow them to adequately understand the operation of such investments. In this way, investors can learn about alternative investments and thus decide if they should include them in their investment portfolios. There are 15 price variables:

  1. Estimated minimum value for the auction
  2. Year of sale
  3. Country of sale
  4. Number of transactions of the work
  5. Auction house
  6. Stock index
  7. Art index
  8. General evolution of prices in the country of sale
  9. Income per capita of the country where the sale is made
  10. Bibliometric
  11. Redrometric
  12. Lot number (sale order of the lot in the auction)
  13. Lot content
  14. Profitability of other investment alternatives, and
  15. Wealth available from potential buyers

To achieve this goal, an in-depth study of alternative investments in art was made. Due to the magnitude of the art (sculpture, furniture, paintings …), our study has focused on the study of pictorial works since these are the most offered in the main European auction house (Christie’s, 2015). Following the selection of pictorial works, our study revealed that the value of these investments is determined by two large groups of variables: endogenous and exogenous.

The endogenous variables are those variables implicit in the work of art itself, such as the author, the pictorial technique and the materials used to make it. The exogenous variables are those variables that are not subject to the work itself that directly influence it as if the author lives or has died, if the work is cataloged or not, the number of times exposed in a specific period of time, etc. In addition to this group of variables, we must differentiate between those that are value variables and price variables. The value variables are all those variables that allow the expert appraiser to determine the value of a specific work at a specific time. This variable is formed by both endogenous and exogenous variables.

On the other hand, the price variables are all those variables related to the art market and the market in general, as well as the time of purchase and sale. Highlighting the minimum value of the estimated work for the auction, the year of sale, the country of sale or the number of transactions of the work among others. Once the two types of variables affecting the pictorial works have been determined, our study has focused on conducting a thorough bibliographic review to determine which are the most relevant price variables within the art investment market. The reason for selecting this variable is that the value of a work is determined by an expert knowledgeable about the art market. While the price is the confluence of a series of variables that fit within the market of supply and demand.

For this, a total of 57 investigations have been collected, of which it has been registered that the most important variables that directly affect the price of a pictorial work are a total of the 15 mentioned variables. Within these selected variables, the most outstanding are the variables of “the auction house that offers the work” and “the year in which it is sold” with a total of 9 citations. Then there are “the country where the work is sold”, “the stock index corresponding to that country”, “the general evolution of sales prices”, and the “redometric” with a total of 4 citations each. The variables that have been least cited in the research have been the “per capita income of the country where the sale is made”, “profitability of other investment alternatives” and “wealth available from potential buyers” with a total of 1 appointment each a.

Through this bibliographic review, the investor is offered knowledge of the variables that affect the price of works of art. In this way, the investor can better understand this market, which will allow him to reduce the level of investment risk in this type of investment, and therefore consider them as interesting investments for their future investment portfolios.

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