Price Determinants and Investment Characteristics of Contemporary ...
Price Determinants and Investment Characteristics of Contemporary ...
Price Determinants and Investment Characteristics of Contemporary ...
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Wirtschafts- und<br />
Sozialwissenschaftliche Fakultät<br />
Departement Betriebswirtschaft<br />
Institut für Finanzmanagement<br />
<strong>Price</strong> <strong>Determinants</strong> <strong>and</strong> <strong>Investment</strong><br />
<strong>Characteristics</strong> <strong>of</strong> <strong>Contemporary</strong> Paintings<br />
Master Thesis<br />
Supervisor: Pr<strong>of</strong>. Dr. Claudio Loderer<br />
Author: Dmitrij Gawrisch<br />
Kiev, Ukraine<br />
01-118-363<br />
Caecilienstrasse 7<br />
3007 Bern<br />
dmitrij.gawrisch@students.unibe.ch<br />
Bern, September 2, 2008<br />
Disclaimer:<br />
The opinions stated in this thesis are my own. They do not necessarily correspond with the opinions <strong>of</strong> the Institut für Finanzmanagement.<br />
The Institut für Finanzmanagement does not take responsibility for mistakes that this thesis may contain.<br />
Pr<strong>of</strong>. Dr. Claudio Loderer<br />
Institutsdirektor<br />
Engehaldenstrasse 4<br />
CH-3012 Bern<br />
www.ifm.unibe.ch
<strong>Price</strong> <strong>Determinants</strong> <strong>and</strong> <strong>Investment</strong> <strong>Characteristics</strong> <strong>of</strong> <strong>Contemporary</strong> Paintings Executive Summary<br />
I. Executive Summary<br />
Media reports suggest that art investments show a better financial performance than<br />
traditional stock investments. This claim is investigated by looking at a unique sample <strong>of</strong><br />
paintings by 32 recognized Western contemporary artists auctioned between 1992 <strong>and</strong> 2007.<br />
First we explore the price determinants <strong>of</strong> contemporary paintings that are identified by means<br />
<strong>of</strong> hedonic regression. We find that the price-optimal size <strong>of</strong> a contemporary painting amounts<br />
to 7 square meters. The highest premium is paid for works on canvas executed in mixed<br />
media, oil <strong>and</strong> acrylic. Similarly to other studies, Sotheby’s New York seems to fetch the<br />
highest prices, followed by Christie’s New York, Sotheby’s London <strong>and</strong> Christie’s London.<br />
Contrary to earlier findings, signature has a significantly negative influence which indicates<br />
that contemporary artists are expected to execute their works in easily recognizable individual<br />
styles. The presence <strong>of</strong> the date mark has a positive effect on prices. A st<strong>and</strong>ardized painting<br />
by the most-expensive artist in our sample, the British Lucian Freud, is around 172 times<br />
more expensive than an identical painting if created by the least-expensive artist, the German<br />
Walter Dahn. The age <strong>of</strong> the artist as well as the age <strong>and</strong> subject <strong>of</strong> the painting do not<br />
significantly influence prices.<br />
In order to derive the basic investment characteristics <strong>of</strong> contemporary paintings, we then<br />
construct a hedonic price index. By comparing Sharpe ratios, we find that contemporary art<br />
shows a worse overall financial performance than S&P500, FTSE100 <strong>and</strong> DAX30 stock<br />
indices, thus suggesting that media usually report on positive outliers whose superb<br />
performance should not be generalized.<br />
Our conclusions are relevant for collectors, art investors, auctioneers as well as artists if they<br />
are interested in the financial performance <strong>of</strong> their works.<br />
Dmitrij Gawrisch<br />
I
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