A New Financial Metric for the Art Market

Abstract

This paper introduces a new financial metric for the art market. The metric, which we call Artistic Power Value (APV), is based on the price per unit of area (dollars per square centimeter) and is applicable to two-dimensional art objects such as paintings. In addition to its intuitive appeal and ease of computation, this metric has several advantages from the investor’s viewpoint. It makes it easy to: (i) estimate price ranges for different artists; (ii) perform comparisons among them; (iii) follow the evolution of the artists’ creativity cycle overtime; and (iiii) compare, for a single artist, paintings with different subjects or different geometric properties. Additionally, the APV facilitates the process of estimating total returns. Finally, due to its transparency, the APV can be used to design derivatives-like instruments that can appeal to both, investors and speculators. Several examples validate this metric and demonstrate its usefulness.

Keywords: Art markets, Hedonic pricing models, Paintings, Auction prices

JEL Classification: C18, D44, G11, G12, Z10