An analysis of the price dynamics between the Turkish and the international paintings markets

Abstract

We examine the dynamics of the relationships between the prices in Turkish paintings auctions and international art markets during 1990–2005 using cointegration and Granger-causality tests. We also estimate the Capital Asset Pricing Model (CAPM) relationship between the Turkish and the global paintings markets. In our investigations, we employ a hedonic price index based on 1030 paintings by 13 Turkish painters and the global paintings market index as calculated by Artprice^©. We find that the prices in the Turkish paintings market move in line with the international art markets in the long term. As expected, the direction of causality runs unilaterally from the international paintings market to the Turkish paintings market. The CAPM beta values were found to be unstable over time and not statistically significant at conventional levels. Hence, international art investors might be able to benefit from the higher returns in the Turkish paintings market while diversifying their art portfolios, especially in the short term.

Acknowledgements

Earlier versions of this article were presented at United Bank of Switzerland (UBS) Art Banking, Basel, Switzerland on 15 August 2007 and at the 2nd National Congress on Economics (2. Ulusal Iktisat Kongresi) organized by Dokuz Eylül University, Izmir, Turkey, 20–22 February 2008. We would like to thank the session's participants for their valuable comments and suggestions.

Notes

¹ Frey and Eichenberger (1995), Burton and Jacobsen (1999) and Ashenfelter and Graddy (2003) extensively discuss the main issues in the economics of arts and provide a review of the literature on the returns to investing in art objects and collectibles. As is the case with conventional financial investments, there are also a number of interesting price anomalies in the art as investment literature as well. See, for example, Matheson and Baade (2004) and Maddison and Pedersen (2008) for an investigation of the ‘death effect’. Czujack and Martins (2004) provides an analysis of the match between the experts’ evaluations of auctioned works and their actual sale price.

² See Atukeren and Seçkin (2007) for a review of the art market applications of the CAPM and the values of the associated alpha and beta estimates.

³ There are a number of studies that examine the returns to investing in the works of painters from particular countries. See, for example, Seçkin and Atukeren (2006a, b) on Turkish painters, Arvin and Scigliano (2004) and Hodgson and Vorkink (2004) for returns to Canadian painters’ works; Higgs and Worthington (2005) for Australian painters’ works; Agnello and Pierce (1996) on American art investments and Mok et al. (1993) for returns on modern Chinese paintings.

⁴ In Atukeren and Seçkin (2007), we estimate the psychic returns to art market investments to be around 30%.

⁵ See Lebriz (2009).

⁶ The most expensive painting auctioned in Turkey is Osman Hamdi Bey's ‘The Turtle Educator’, which was sold for about 3.5 million US dollars in December 2004. At the end of May 2008, another painting titled ‘Istanbul Hanımefendisi’ (A Lady of Istanbul) by Osman Hamdi Bey was auctioned for about 3.4 million British pounds by the Sotheby's in London.

⁷ The company's website is http://www.artprice.com. The authors are not affiliated with Artprice^© nor any of the services the company provides. Furthermore, our reference to Artprice's indices should not taken as an advertisement or a recommendation on the company.

⁸ The ADF test result on the second difference yields a t-value of −4.4353 where the 5% critical value is −3.1199.

⁹ As a robustness check, we extended the maximum lag to 3 years. The results did not change qualitatively but led to fewer degrees of freedom. The estimation and model selection details are available upon request.

¹⁰ However, the cointegration relationship between the prices in the Turkish and the international paintings markets continues to hold in the 1993–2005 sample. The estimation details are available upon request.