Investment Returns and Economic Fundamentals in International Art Markets

Abstract: Works of art are neither easily tradable across borders, nor evaluated according to globally identical standards. We examine geographical segmentation and its effects on price formation and returns in the international art auction market. We find (i) a close connection between the country of sale and the type (e.g., nationality) of artworks sold; (ii) substantial international variation in average returns to art investments over the period 1971-2007; (iii) an impact of both global and local GDP growth and equity returns on national art market returns. Local fundamentals have not lost importance over time, despite increased economic integration (especially between the EU countries). Yet, country-specific economic factors matter less in determining the auction outcomes for high-end art. Our findings suggest the continuing importance of international demand differences in shaping the global art market, at least outside the top segment.