In Art We Trust

CentER Discussion Paper Series No. 2021-016

57 Pages Posted: 25 Jun 2021

See all articles by Yuexin Li

Yuexin Li

Tilburg University - Department of Finance

Marshall Xiaoyin Ma

Erasmus University Rotterdam (EUR)

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: June 21, 2021

Abstract

While trust is the cornerstone in the functioning of any market, it is of particular importance in the markets that are unregulated, illiquid, and opaque, such as the art market. We therefore examine the role of authenticity, as captured by the provenance information, on the sales probability of auctioned paintings, their price formation and returns. Auction catalogues include four authenticity dimensions: pedigree, exhibition history, literature coverage, and certification. We find that provenance information increases sales probability by up to 4%, leads to price premiums up to 54%, and increases annualized returns by 5% to 16%. As high dimensional fixed effects may induce estimation concerns, we perform LASSO estimations. To address potential endogeneity problems between the provision of provenance and price expectations, we perform quasi-natural experiments in difference-in-differences (DiD) settings on auction houses’ provenance policy changes, and the discovery of fakes and forgeries. We also perform robustness tests on subsamples less affected by past prices such as those estate sales following the death of a collector.

Keywords: auction; hedonic pricing; art investment; art returns; pedigree; auction house; cultural economics

JEL Classification: D44, G20, G11, Z11

Suggested Citation

Li, Yuexin and Ma, Xiaoyin and Renneboog, Luc, In Art We Trust (June 21, 2021). CentER Discussion Paper Series No. 2021-016, Available at SSRN: https://ssrn.com/abstract=3871007 or http://dx.doi.org/10.2139/ssrn.3871007

Yuexin Li (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Xiaoyin Ma

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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