Paintings

Pricing the priceless

An econometric approach on art
Art and money. An apparent contradiction according to a lot of art and culture lovers.
Nonetheless a great deal of money hides behind the world of beautiful masterpieces.
The turnover of auction houses like Chistie's and Sotheby's alone runs into billions of
dollars. When we also notice that art pieces like ondriaan's !ictory "oogie Woogie
are sold for tens of millions of dollars# we cannot conclude differently than there is
indeed a relationship between money and the world of art. $n this relationship# and
especially the price setting of individual paintings# we've done an econometric
research. %t proved to be a precarious but learning endeavour.
The art market
The market for art pieces is constructed differently than most other markets
economists and econometrics analyse. $ne of the big differences is the fact that the
supply &in most cases& is made of uni'ue products. Still# uni'ue products have
characteristics that can be measured or mapped. %n an econometric model it is even
possible to do this all at the same time. We've 'e(plained' the proceeds of )*+,
paintings# auctioned at Christie's. And because numbers say more than words# we'd
like to refer to the estimation results# stated in table -.
Table 1. Estimation results of the log-linear regression model
Variable Coefficient Standard error t-value
Constant ../*0 & &
1og Surface ,./,* ,.,-2 -2.2
Classification in periods
-0th century &,.,/. ,.,0/ &,.)
-*th century &,.-2- ,.,23 &3.)
%mpressionism &,.,2- ,.,2. &,.*
3,th century 4before -*)+5 &,.,*) ,.,2. &-.3
3,th century 4after -*)+5 &,./.. ,.,2* &)..
Origin and attribution of a work of art
6ated ,.),3 ,.,)- *.0
$rigin 7nown ,./2+ ,.-,2 /.+
1and of Auction 8 $rigin &,.+3* ,.,/* &-/.2
Signed &,.,-- ,.,)0 &,.3
%n 1iterature ,.2-. ,.-+. )..
%s 9(hibited ,.2,+ ,.-.3 )./
Technical characteristics
:aper &,.+-) ,.--2 &).)
Chalk ,./)- ,.-/. 3.+
:en ,.,/- ,.--0 ,./
Tempera ,.23- ,.3)+ 3.*
Not $il paint &,.,** ,.-/+ &,.2
Fame of artist
Author ,.*/) ,.,2/ -3.*
%n ;anson ,.0*0 ,.,2* --.)
1og %nternet <its &*.29&+ 0.)9&) ,.*
Auction Year
-**, ,#))0 ,#,+/2 0#/)
-**- ,#,-*3 ,#,+* ,#//
-**3 ,#,3+/ ,#,++3 ,#).
-**/ &,#-3*0 ,#,+)+ &3#/0
-**) &,#-,-3 ,#,+/2 &-#00
-**+ &,#,+3+ ,#,+-- &-#,/
-**. ,#,/.2 ,#,)*- ,#2+
-**2 &,#,/*+ ,#,)*- &,#0-
-**0 &,#3,.3 ,#,.)) &/#3
!erformance ad"usted #$
% &.'$ model standard
The performance is not at all great. The ad=usted >
3
tells us that /3? of the variance
in the price is e(plained by the variables above. $r@ we are unable to e(plain .0? of
the 'movement' in the price. The model standard error 4-.325 tells us that the *+? of
the confidence interval is from -3.2
-5
times as cheap to -3.2 times as e(pensive as the
estimated priceA We owe it to the large 'uantity of data# that we still get significant
results.
%n the table above are two kinds of variables. 6ummy&variables and variables in the
logarithm. The coefficient of a dummy&variable must be interpreted as follows@ small
coefficients are almost proportional differences# but a coefficient of ,.2 means that a
work of art becomes ceteris paribus twice as e(pensive 4e
,.2
8 3.,-5. The coefficients
matching the logarithms are elasticity's@ when a painting gets -,? bigger# the price
rises with appro(imately /? 4-.-,
,./,*
8 -.,/5. And in case of a larger change like two
times as big as the standard work# the price is -.3) times as high 43
,./,*
8 -.3)5.
Classification in periods
We've made distinctions in the works of $ld asters 4-2
th
century and before5# art out
of the -0
th
century# the -*
th
century# works of art by 4:ost&5%mpressionists# art out of
the first half of the 3,
th
century and out of the second part. To avoid econometric
pitfalls like dummytraps# we've taken the $ld asters group as the reference group &
which technically means leaving it out of the picture. All period dummy's coefficients
have values smaller than ,. This implies that the multiplication factor is somewhere
between , and -. Bor clarification we've shown the correction factors in the ne(t
figure.
Figure 1. Correction factors of the different periods
0.6
0.7
0.8
0.9
1
1.1
Old Masters 18
th
19
th
Impress 20
th
I 20
th
II
After the correction for differences in material and siCe &one of the advantages of
multiple regression& it shows that# in reference to the works of art made by $ld
asters# the paintings made in the other periods are in general worth less. The figure
shows that works out of the -0
th
century and out of the %mpressionism period are the
runners up. The -*
th
century appears to be a less valuable period# according to our
model.
%t's interesting to see that works out of the %mpressionism period and out of the first
half of the 3,
th
century are not worth much less than the works of art by $ld asters
such as >embrandt# >ubens and ichelangelo. This shows the significance of
'pricepushers' like onet# !an Dogh and :icasso. %t's remarkable that modern art has a
significant
2)
lesser value. Artists like Appel# Corneille and Warhol must cope with a
lot less than their colleagues of before the wars. This has to do with two reasons. Birst
of all the supply is bigger# and second it is the 'uestion if the art evaluation of today
will last.
The authenticity and history of the work of art
We've also taken a look at the influences of the fame and history that the painting has
and whether the attribution is certain on the value of the work of art. Birst we'd like to
discuss the factors concerning the authenticity of the attribution of a painting to a
certain artist. When it is found out that a painting is not made by the master &which
was originally thought& but by a lesser painter# the price of the work would probably
drop. %f the work of art is dated or the origin is known# then its value would be
significantly higher. A remarkable fact is that a signed work doesn't yield more. The
coefficient is even &neglectable& negative.
"esides the big differences in value between different painters# there is also a big
difference in value between several works of art made by the same painter. To catch
those differences# there are some variables in the model which could tell something
about the 'uality of the work of art. %t shows that when a painting has been in a
e(hibition of some kind about the artist the value will be twice as much as when it
wasn't in an e(hibition. When a painting can be found in art historical literature# it
also yields c.p. twice as much.
When a painting is auctioned in the same country in which the artist is born it shows
that it yields 2,? less. So it would seem that auctioning a work of art in your own
country isn't the smartest thing to do. "ut here lies the danger of non&e(perimental
data@ paintings of higher 'uality are more likely sold abroad. %t takes a more subtle
investigation to correct this.
Trend in de art market
The trend in the art market in the period -**,&-**0 is modelled here with a second
degree e'uation. %t's better done with dummy's# but this somewhat abstract &and
especially not usable to forecast& description give us a nice insight into the considered
period. The negative value of the coefficient of the year of auction states that the
e'uation is a dalparabool. This is in agreement with the reality. %n -**, the art market
was ready to pop. 9ncouraged by the threatening recession# the market collapsed. At
about -**/ it had hit rock bottom and afterwards it steadily increased. <owever the
high level of -**, has not been reached since.
Technical characteristics
"ecause a sketch in general yields less than an oil painting# there is also a difference
made in the canvas and the drawing or painting material. The results are noteworthy.
6e reference point is a painting made on canvas and oil as painting material. %t shows
that works made with chalk render significantly more. This coefficient should
however be viewed together with the paper coefficient# because *.? of the chalk
works are made on paper. Then it shows that chalk on paper works yield less than oil
on canvas. When an art work is painted with paint but not with oil paint &like gouache
or acrylic paint& the work is worth slightly less than if it had been made with oil paint.
Tempera &paint with yolk instead of oil as a binder& works render more than twice as
much as oil paintings. Tempera is a techni'ue used fre'uently by the $ld asters. So
once again we'd have see the coefficients in combination with each other.
"ut we don't understand what is really going on# and neither do the appraisers as will
be shown.
Artistic performance
1astly we've tried to model the artistic performance of an artist. To do so# we've
defined three e(plaining variables. These are Author &does the author of this article
know the artist&# ;anson &is the artist stated in the standard art historical literature
E<istory of ArtE of <. W. ;anson& and the on our own gathered indicator of the
modern world@ the logarithm of the e(act number of internet hits on the name of the
artist by the 'search engine' Alta!ista. %f the author of this article is familiar with the
name of the artist# the worth of the work rises with 3+,?. %f the artist is listed in
;anson's work# it almost yields twice and a half as much. The real big ones# which are
stated in ;anson and known to the author# are more than si( times worth as much. The
high t&values also state the importance of such variables for the model. $nly the
internet hits doesn't work. This is remarkable@ the world of high priced art and the
internet differ apparently.
The opinion of the art connoisseur
%n the art market there are persons who can give an estimate of what the work of art is
worth. 6uring auctions there opinions are fre'uently sought after. 9stimates of the
values that those art connoisseurs have given to a work of art are known in a part of
our data. We've taken these opinions in consideration in our analysis.
Birst we've looked at the ne(t 'uestion@ '%s the art connoisseur rightF'. Bor that we've
taken the logarithm of the rendered value of a work of art and regressed that on the
logarithm of the mean value the art connoisseur has attached to the work. The results
are encouraging. The performance improve significantly@ an ad=usted >
3
of ,.0* and a
standard error of ,.)*.
We are encouraged by these improvements to further investigate. Bor that we've put
together the powers of our e(amined model and the estimates of the art connoisseur.
We've put together the first model and the opinion of the art connoisseur. This
improved the performance a little@ the ad=usted >
3
rose to ,.*, and a standard error
declined to ,.)0. The estimation results are shown in table 3. All non significant
deviates are left out# so what is left are the significant deviates of the opinion of the art
connoisseur.
Table $. Estimation results of the regression model with the estimation the art connoisseur.
Variable Coefficient Standard error t-value
Constant ,.002 & &
1og estimation ,.*/- ,.,-- 0).)
Classification in periods
3,
th
century 4before -*)+5 &,.,.2 ,.,), &-.2
3,
th
century 4after -*)+5 &,.-/0 ,.,/2 &/..
Origin and attribution of a work of art
%n 1iterature ,.-/, ,.,+2 3./
Trend in the art market
Auction year &,.-)/ ,.,0/ &-.2
4Auction year5
3
,.,3/ ,.,-0 -./
Technical characteristics
Tempera ,..,+ ,.-0- /./
Fame of the artist
%n ;anson ,.-2/ ,.,)) /.*
1og %nternet hits &-.39&/ ..,9&) &3.3
!erformance ad"usted #
$
% &.(& model standard error % &.)*
This model is a slight improvement in comparison to the model in which the art
connoisseur stood alone with an ad=usted >
3
of ,.0* . <owever the standard error
means that still one in twenty paintings is sold 3.. times higher or lower than
e(pected. The number of significant variables is noticeable lower# which shows that
the art connoisseur estimates most of the price influences correctly. Still# ob=ections
can be made here.
A constant term and coefficient matching the estimates of the art connoisseur of ,.*/-
remain# significantly different from one. %t shows that art appraisers in general
underestimate the paintings and the real e(pensive ones even more than the more
normal works. With the model their opinion can be systematically ad=usted. The
variable 1og Surface has disappeared out of the results table. This means that in
general the art connoisseur estimates the value of the surface remarkably well.
<owever# there are enough points on which the opinion of the art connoisseur must be
corrected. Bor instance@ there has to be a constant correction for the $ld asters who
are listed in ;anson's standard work# or if the painting itself is stated in the art
historical literature. The internet hits correction might even be relevant@ surprisingly
the variable has become significant. "ut# to say it ones more# more research is needed
here.
Conclusion
9ven though the construction of a model which e(plains the prises of works of art is
difficult# it creates a lot of insight. 9specially when the appraisal of the art
connoisseur is used besides the econometric techni'ues. With a model these appraises
can be corrected and supplemented. And with models there are a lot more possibility's
than is discussed here. We would get a much better estimates of trends in the art
market than we get now# should we make a nice model type analysis for all the
available data &about ..+ million. Which will not take away that buying art is a
financial risky business. "ut with a model we could at least figure out how risky.
-5
A *+? confidence interval is calculated by adding twice the standard error to the
estimation. "ecause we are working with a log linear model# we have to take the
e(ponent of two times the standard error# e
3G-.32
8 -3.2.
35
A variable has a significant influence on the price setting when the t&value of the
coefficient is bigger than 3.