Two-step art price hedonic index of the Polish paintings

Art is a finite commodity and if bought well, its value can increase significantly over time. The history of investment in art dates back to the 17-th century when the rich and famous old European families followed the strategy of capital formation: one-third was invested in stocks, bonds and other securities, one-third in real estate and one-third in arts, precious metals, gemstones, etc. Art tends not to fluctuate as much as the stock market and art investment portfolios can provide strong income streams in addition to potential long-term capital growth. However it should be noticed that specific features of artworks make investment in art incomparable to the conventional assets since certain art genres do better than others for a number of reasons. Art can be an unpredictable investment in which returns may be heavily influenced by not only a number of macro-factors, such as economic growth and inflation, but also micro-factors unique to the market, such as global interest in certain genres and changes in trends, tastes and culture.

In order to analyze the financial performance of the art investment, it is necessary to evaluate expected returns, which might be obtained from such investment thus an art price index should be developed. There are two main approaches for producing art price indices analyzing repeat sales of the same object at auction and developing a hedonistic model, which takes into account characteristics and qualities of the individual works.

The lack of market transparency, illiquidity and high object costs caused limited participation to a select class of wealthy individuals. Thus the majority of research concerns developed markets, representing wealthy societies and countries. However newly created wealth in emerging markets especially in China, Russia and the Middle East has increased the number of participants in the art trade, therefore art price indexes for emerging markets have been also evaluated.

The Polish domestic art market is relatively small but it has been developing intensively for the last ten years. The paper attempts to evaluate returns from the investment in Polish paintings. The aim of the research is evaluation of hedonic art price indexes applying direct and indirect approaches. Investigation is provided on the basis of data concerning the selected sample of paintings sold at auctions held by auction houses and foundations in Poland in the years 2007-2013.