The art market: an introduction to the economic model

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Rayah Levy

The art market economic model is so much more than just supply and demand: it is a hybrid of history and prediction, where art is bought and sold based on its past value as well as its predicted future price point.

That is the view of Rayah Levy, founder and director of Mill Valley, CA-based fine art investment company ArteQuesta.

“The art market is smaller than the stock market, where billions of dollars are traded each day,” she says. “While the value of the stock market is based on various influences in the current economy, the art market is largely dependent on the activity of private collectors, museums, galleries, businesses and corporations.

“The category of private collectors is growing like never before and is tremendously exciting. Art investing is no longer for the ultra-wealthy. With guidance, anyone can become a private collector for a price that fits their budget and make an excellent return on their investment.”

Secondary art market activity usually peaks in the spring and autumn when the major auction houses such as Christie’s and Sotheby’s schedule premier auctions. Primary art market activity and private sales outside of the auction house take place throughout the year, although they are often not announced or publicized. These private sales account for more than 80%-90% of the art market’s total sales.

“Generally speaking, the art market fares reasonably well despite fluctuations in the stock market,” says Levy. “Historically, the average fluctuation in the Artprice Global Index has been three times smaller than the Dow Jones Industrial Average and the S&P 500. Many researchers continue to show that the art market is not correlated with the stock market and is therefore known as a ‘storehouse of wealth’.

In the late 1980s during a stock-market boom, the art market expanded like never before, and financial analysts began to take a greater interest to study it in-depth. What had previously been a relatively obscure market became more transparent with research and indices – with the result that a growing number of serious investors are seeing art as a valuable addition to their portfolios.