In Art We Trust
CentER Discussion Paper Series No. 2021-016
57 Pages Posted: 25 Jun 2021
Date Written: June 21, 2021
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
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