Abstract
The article endeavours to construct a model that links the gap between returns to an investment in ‘Fine Art’ and the ‘real’ price of the 'Fine Art' being traded. Thus the process used in creating shared value within the market for 'Fine Art' is examined. Art prices are usually set in the primary market through the auction process, which should also typically reflect an efficient way of creating shared value. As the auction process in the primary art market is not efficient; it does not create shared value as would occur in a typical free market structure. Artificial rigidities exist within the primary art market; thus the links between the primary art market and the secondary art market are shown by incorporating the concepts of the 'Value of Information' and ‘Strategic Uncertainty’ into the transmission mechanism.
Highlights
Modelling the market for ‘Fine Art’ with the aim of understanding investor returns poses a whole new set of challenges that differentiate the market for 'Fine Art' from many other market structures The problem is twofold, firstly, the market structure is extremely different and secondly the asset holds characteristics very different from most other tradable assets
The most common trend used to measure such a ‘value’ is found in the construction of price index systems employed by different institutions which dominate over the market for ‘Fine Art’
While popular trends may sometimes be present in the art market, they do not last into the long run price function, nor are they clearly distinguishable from the ‘fundamental’ values inherent in social culture (Candela et al, 1997). These inherent fundamentals and the poor performance of the index methods developed by the market institutions, have greatly contributed towards the existence of an inefficient market environment for 'Fine Art', This perspective demands a suitable model to be mapped, to better understand the relationship that exists between the primary and secondary art market
Summary
Modelling the market for ‘Fine Art’ with the aim of understanding investor returns poses a whole new set of challenges that differentiate the market for 'Fine Art' from many other market structures The problem is twofold, firstly, the market structure is extremely different and secondly the asset holds characteristics very different from most other tradable assets. The leading problem is the lack of homogeneity for ‘Fine Art’ This means that while art may be desirable as an alternative investment because it may hold a ‘store of value’, which in some cases may even exceed inflation, it is near impossible to predict the return to the investor. This is due to ‘Fine Art’ being endowed with a great deal of ‘fundamentals’ underling the desire to hold the asset. These ‘fundamentals’ are often in themselves connected to a cultural bias embedded within the social constructs. The most common trend used to measure such a ‘value’ is found in the construction of price index systems employed by different institutions which dominate over the market for ‘Fine Art’
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