How art-market indices can help collectors and owners better understand this important asset class.
It’s an old saw that investing is both an art and a science. By the same token, improvements in data science are making art indices a more viable tool for understanding trends in art markets.
While no single art index perfectly captures every factor that influences art valuations, art indices do play an important, and growing, role in helping investors better understand the art market. For individual collectors, these benchmarks can be invaluable for spotting art market trends, drawing correlations between art and other asset classes and making more informed decisions around owning art.
Here’s what you should know about a representative selection of three art index providers:
Founded in 1989, Artnet has grown into a leading online resource for researching, buying and selling art. In addition to custom indices, Artnet tracks seven standard indices: Top 100 Artists, European Old Masters, Impressionist Art, Modern Art, Post-War Art, Contemporary Art, and Chinese Art and Artist Indices.
The company’s indices are based on its extensive Price Database, which covers more than 1,800 auction houses and 340,000 artists, featuring art-auction data going back to 1985. Among other distinguishing factors, the indices identify the median price for an artist and weight it equally with the median for other artists. This dampens the effect of outlier sales for any given artist and provides broader representation of the art market than public auction data alone.
A possible drawback of this methodology is its reliance on self-reporting from market participants. Fluctuations in reporting or changes in the underlying characteristics of the art sold in any given period can skew the results.
Art indices do play an important, and growing, role in helping investors better understand the art market.
First introduced in the early 2000s by professors Jianping Mei and Michael Moses, the Mei Moses indices took their inspiration from the Case-Shiller Home Price Indices, which are based on repeat sales of single-family homes. (Mei studied under Robert Shiller, co-creator of the Case-Shiller Indices.)
The index creators reasoned that repeat sales are a better way to track price trends for unique objects, such as art, because they express price changes of the specific underlying assets, rather than the average or median for the market. This helps minimize the effects of infrequent trading, reporting biases or characteristic differences that can skew the data.
In 2016, Sotheby’s acquired the Mei Moses Indices. Put simply, the indices track all live and online auction sales at Sotheby’s, Christie’s and Phillips for artworks that previously sold at public auction, going back roughly 200 years. The indices are based on data covering more than 80,000 works of unique art by more than 10,000 artists across a wide range of styles, from Old Masters through Contemporary.
While this methodology provides a true apples-to-apples comparison of valuation changes, the tradeoff is that it represents a very small percentage of the art market—namely higher value works of art. Hence, these indices may not be as accurate for tracking the vast majority of the market.
As these benchmarks improve, they are increasingly helping collectors understand the value of what they own.
Where the Artnet and Mei Moses indices focus on actual public sale data, Wondeur uses artificial intelligence to recognize pricing patterns for 240,000 artists born after 1900, based on analysis of non-transactional drivers of value in the art world. They cover 95% of Post-War and Contemporary artists across a wide range of mediums, including painting, photography, work on paper, mixed-media, sculpture, print and installation.
A key distinction, Wondeur’s indices seek to capture the activities and impact of market influencers, such as museums and galleries, on artists’ trajectories—and art valuations. This methodology can cover a much broader swath of the art market than auctions, and it accounts for factors that have historically explained changes in art-market value. Further, Wondeur’s technology supports subindices, based on such factors as artist birthdate, medium, gender, nationality and geography.
Art indexes do have their limitations, to be sure. Art is a large, heterogeneous and unregulated market, in which more than half of all sales are private. The unique qualities of a work of art, including its provenance and condition, affect individual prices—and ever-changing tastes greatly influence valuations. What's more, most art indices don't include work that fails to sell.
Despite these challenges, art indices have evolved significantly over the last several decades, thanks to better data and improved methodologies. And as these benchmarks improve, they are increasingly helping collectors understand the value of what they own, identify pricing trends and make better decisions around owning and planning around their art.
Morgan Stanley’s Art Resources Team helps clients understand the significance of what they own and offers guidance on how to make more informed decisions for owning and managing art.
For more information, reach out to your Morgan Stanley Financial Advisor or Private Wealth Advisor for a copy of the report, “Demystifying and Understanding Nuances of Art Indices,” upon which this article is based.
- How can art indices help me better understand the art market?
- How can art indices help me make more informed decisions about owning and managing art?
- What more can I do to understand the value of my collection and how it fits into my overall wealth?