Art auctions and the poorer rich: The impact of the 2015 stock market selloff on the emerging Philippine art market

This paper looks into the Philippine secondary art market, which has recently emerged with the country’s booming economy. Specifically, the paper aims to determine the effect of the August 2015 stock market sell-off on prices and profitability of art auction sales in the Philippines. Works of art may be considered as alternative investment goods for stocks. More works of art may be demanded as part of an investment diversification strategy when the equity market is bearish. On the other hand, art works may also be part of a conspicuous consumption behavioral pattern, such that when income and wealth levels fall, the demand for art works subsequently drops. To determine the net effect of stock market conditions on the Philippine art market, an empirical model is estimated using the ratio of the auctions’ hammer price to the starting bid as a measure of art market profitability and vitality. We used actual auction sales data from Leon Auctions, the biggest auction house in the Philippines, accounting for about 70% of all auction sales in the country. Our results, with multiple linear regression using ordinary least squares, reveal that art works are more of a conspicuous consumption good in the Philippines. The reduced income and wealth after the stock market plunge in August 2015 (negative returns to stock holdings and lower value of stock holdings due to plunge in stock prices) led to lower willingness to pay for art works and lower returns in the September 2015 auctions compared to the September 2014 auctions. It appears that funds have not been moved from equities to art as an alternative form of investment. The “poorer rich” effect appears to prevail over the alternative investment effect in the Philippines.