How do prices for art relate to prices for equities? Does art underperform or outperform stocks over the long run? In their November 2009 paper entitled “Art and Money”, William Goetzmann, Luc Renneboog and Christophe Spaenjers investigate relationships between equity prices and art prices and between incomes and art prices. To enable their analysis, they construct an art price index spanning 1765-2007. Since art price data draws heavily on sales in Great Britain, they focus on the British equity market and incomes. Using their art price index, a British equity market index and GDP data for 1830-2007 and British income data for 1908-2007, they conclude that:
- Same-year and prior-year equity market returns have significant positive correlations with changes in art prices over the period 1830-2007. Equity capital gains and losses (not dividends) drive this relationship. This result is robust to many model variations and holds for both of two subperiods.
- Pre-World War II data suggests that an increase (decrease) in British income inequality produces higher (lower) art prices. The relationship disappears after World War II, perhaps due to art market globalization.
- There is a strong, long-term positive relationship between top British incomes and art prices.
The following chart, taken from the paper, compares the evolutions of the art price index and a British equity index (excluding dividends) over the period 1830-2007. While the equity index is more volatile, trends in the art price index and the equity index often match. Art is generally not useful as a hedge for equities.
In summary, evidence suggests that: (1) the wealth of the wealthy drives art prices; and, (2) art prices tend to evolve with, or somewhat behind, the equity market at a similar pace.
