Betting on the Art Market Pt. 1 – artmarketblog.com

 Betting on the Art Market Pt. 1   artmarketblog.comThe reason that I invest in art and am involved with the art market is because I find investing in art to be extremely enjoyable, exciting, fun and interesting which is presumable the reason that most people invest in art. With this in mind I would like to hear your thoughts on a company that has managed to come up with a way of investing in the art market that seems to have removed all the fun, excitement, enjoyment and interest. The company in question is Intrade which is an online marketplace for the exchange of predictions on uncertain future events often called “prediction markets” or “event markets” which are more commonly known as futures. Intrade have recently announced that they have create the world’s first publicly traded futures contracts written on the global fine art market. See here:
http://www.intrade.com/jsp/intrade/common/c_cd.jsp?conDetailID=648715&z=1224114676836

The art market indicator that you are making a prediction on when you purchase a contract is the Mei Moses All Art Index which was created by Jianping Mei and Michael Moses whose website (artasanasset.com) states that “We have developed such a database for art that now has approximately 12,000 repeat sale pairs to which approximately an additional 1000 pairs are added each year. We use a statistical methodology to create our index which is similar to that developed by Professors Case and Shiller for their residential real estate index published by Standard and Poor’s.” SInce the Mei Moses website doesn’t explain what a sale pair is I went to the website of Standard and Poor’s where the methodology of the sale pair as used in both the Case and Shiller real estate index and the Mei Moses index is explained as “Each sale price is considered a data point. When a specific home is resold, months or years later, the new sale price is matched to the home’s first sale price. These two data points are called a “sale pair.” The difference in the sale pair is measured and recorded. All the sales pairs in a region are then aggregated into one index. Sales pairs are
carefully screened for any data points that would distort the index.” Basically what this means is that Mei Moses index charts the difference between the original sale price of an artwork and the most recent sale price.

When you make a prediction with Intrade regarding the Mei Moses index you are predicting what the value of the index will be on the 6th of Jan 2009 at 12:00PM ET when the index is next updated. The Intrade website explains the transactions that take place in relation to the Mei Moses index as such:

“A contract will expire according to the value of the Mei Moses All Art Index as calculated by Beautiful Asset Advisors (BAA) and published simultaneously at www.artasanasset.com and Intrade on the 6th of Jan 2009 at 12:00PM ET. The Mei Moses All Art Index uses repeat sale pair method to measure the performance of the global fine art market. More info is available at www.artasanasset.com. These contracts will expire with a dollar value of $ (2008 value of Mei Moses All Art Index) / 10. For example, if the 2008 index value printed on Jan X at X pm ET is 280, each contract shall expire with value $28.00. Profit and loss will be calculated as the difference between the trade price and the expiry price. For example, if you bought contracts at a price of $30.00 and the expiry value is $31.00, your profit will be $1.00 per contract. If you sold contracts at a price of $30.00 and the expiry value is $29.00, your loss will be $1.00 per contract.” (intrade.com)

To be continued….

 Betting on the Art Market Pt. 1   artmarketblog.com**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.comt Betting on the Art Market Pt. 1   artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.

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  • http://christopherwheat.com Christopher Wheat

    To answer your question on a company that has managed to come up with a way of investing in the art market that seems to have removed all the fun, excitement, enjoyment and interest that’s simple ART HEDGE FUNDS. There is plenty of great art and great living artists that have just as good a return or better. Yes the prices may be lower, so investors may have to buy more work. That benefits the artist and the investor. How? An artist has to build a collection of good work and have more than one sale to build a reputation and build value of investment. It’s Not always good to buy at top dollar, look at the mess the economy is in now. The whole idea of business is to buy low and sell higher at a fair price.

  • http://www.artmarketblog.com artforprofits

    Hi Christopher,

    Thanks for the comment. I agree that art hedge funds have also provided another more boring way of investing in art but at least the hedge funds have some involvement with artworks themselves whereas the art futures market is completely artless.

    Nick

  • Lew Mantros

    These Intrade futures are interesting. You have some valid points, but whether we like it or not, I get the sense this is where the art world is heading, and these guys are rather ahead of the curve. One could argue how the availability of “art derivatives” as Rigetti calls them in the FT article would be good for serious collectors, because the ability to manage risk by trading in the futures market will make them more willing to pay premium prices for indivdual pieces. Distributing risk to those best positioned to manage it can create value, and hence help grow the industry as a whole. Ultimately, that’s a benefit for art collectors, art investors, and artists themselves.

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