For a while it seemed like a month wouldn’-t pass without hearing of a new record-breaking art auction, along with the inevitable insinuations of a “-bubble”-. Last night the buyers blinked, as a Van Gogh work expected to command $28-35 million did not get any bids.
People talk about art as an asset class and yet there is no way to sell it short or hedge against declines in value. Clearly, prediction markets are an answer. It seems like this would be a good niche market for a real-money exchange. Markets could either be tied to upcoming auctions or, more likely, an art price index. The latter would allow any art owner a hedge with basis risk.
This, by the way, is not to imply that art prices are about to collapse. There is some evidence that they trail housing prices with a lag of a year or two, but this is mainly anecdotal to the late ’-80s / early ’-90s period. It is more likely that the location of demand is shifting.
Exchanges that are fortunate enough to be operating in modern legal and regulatory regimes show a somewhat limited imagination in their offerings. There are opportunities in the current re-shaping of how art is priced and artists are rewarded.
Previous blog posts by Jason Ruspini:
- 2009 tax futures yielding 1.5%
- Intrade, with carry
- Talking tax futures on BNN, Canada’s business channel
- Tax Futures, “In Real Life”
- YooNew, fears and hopes
There are art funds which could offer the same exposure. I do think markets in individual pieces would be very useful — perhaps museums and collectors could sell a 10-30% interest in each individual piece, which would 1) allow art funds to diversify in a more liquid environment, and 2) help collections mark to market more effectively. Of course, you’d need a take-out rule (like “The original owner may force owners to sell for 15% over the weighted average price of the last three months,” although that would dampen values somewhat).
I believe something like this was done with a rare violin about six years ago, but I believe it was divided into ten $200,000 shares. Not quite what you’re looking for, but a start.