JOURNAL OF CHINESE ECONOMICS, 2016 Vol. 4. No. 1, pp 1-12 (Online Version)
http://journals.sfu.ca/nwchp/index.php/journal
Determinants of Auction Price on Chinese Art Market1
Hongfei Ye2, Yun Wang3, and Shaomin Huang4
Abstract: The auction market for Chinese arts expanded exponentially in the past two decades.
Holding Chinese arts as an asset has become very profitable, attracting both collectors and
investors. This paper investigates the determinants of the artwork’s price. Using art auction data
spanning from 1995 to 2014, we adopt the Hedonic pricing model to analyze key factors that
influence auction prices on the Chinese art market. Our results show that some of the artwork’s
physical characteristics, as well as the location of auction houses, have significant positive
impacts on the auction prices.
Keywords: Chinese art market, Auction, Pricing model.
JEL Classification: D44 O53 Z11
1. Introduction
In 2014, the report from European Fine Art Fair (TEFAF) showed that China had ranked the 2nd
in the worldwide art trade for the past two years. Three years earlier, in 2011, China was on the
top spot of global art sales, accounting for 30% of the global business. From a humble start in
1994, the Chinese art auction market has grown rapidly in the past two decades. Causing by a
wave of China’s “new rich” population, artwork sales in and out of mainland China has been and
are still booming. Sales on China’s domestic market reached $8.2 billion in 2010. Data from
international auction houses also showed that purchases from mainland China pushed Sotheby’s
sales in Asia up to $960 million in 2011, and accounted for one fifth of Christie's global business
for the first half of 2012. In 2011, three of the ten most expensive pieces of art sold at auctions
were Chinese paintings. Due to the soaring price and high volume of transactions, China’s
wealthy investors had found new opportunities and become a significant driving force underlying
the current art market surge. In this paper, we investigate the determinants of Chinese paintings’
prices. Using art auction data spanning from 1995 to 2014, we analyze the key factors that
influence the Chinese art market.
Existing research has suggested using the Hedonic pricing method to evaluate the Western
art market. Anderson (1974) and Chanel et al. (1994) both adopt the Hedonic pricing model to
derive an art price index. Buelens and Giinsburgh (1993) use the model to calculate price index
of paintings by British, Netherlandish and Italian painters. Czujack (1997) focuses on one
particular painter and examines the price determinants of Picasso’s paintings at auctions from
1963 to 1994, including the size, exhibition, material, auction house, signature and year of a
painting. Pommerehne and Feld (1997) focus on a single price determinant, i.e. the purchasing
1
Yun Wang, the corresponding author, would like to thank the National Science Foundation of China (Grant No. 71403228) and
the Chinese Fundamental Research Funds for the Central Universities (Grant No. T2013221044) for funding support.
2
Postgraduate, Department of Economics, National University of Singapore, Singapore
3
Corresponding author, Assistant Professor, Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen
361005, China. Email: [email protected]
4
Professor of Economics, Dean, International School of Business, Beijing International Studies University, Beijing 100024,
China.
2
Ye, Wang, and Huang
museum. He shows that the price of the painting in US tends to be higher when the painting is
purchased by a foreign public museum. Recently, Renneboog and van Houtte (2002), Higgs and
Worthington (2005), Ursprung and Wiermann (2008), Higgs (2010), Renneboog and Spaenjers
(2010), and Etro and Pagani (2013) also apply the Hedonic model to auction dataset from
different countries to examine the price determinants. Meanwhile, there are a few suggestions for
improving of the Hedonic model when applying to art auction market. Nahm (2010) measures
size of paintings as a discrete variable. He discovers a non-linear relationship between the
paintings’ size and price. The price increases with size to a certain peak value, beyond which the
price declines. Witkowska (2014) considers the sale year of a painting as a dummy variable, and
evaluates its impact when the sale year interacts with other regular price determinant variables.
There are a few recent studies applying the Hedonic model on the Chinese art market.
Kräussl and Logher (2010) study Chinese art market using auction prices and collect 7172
observations from 1990 to 2008 to run a hedonic regression. They show that the influence of
auction houses varies across national art markets. The size of a painting, the artist’s reputation,
ink and color, signature and materials are all important determinants for price. Interestingly, in
contrast to our findings, Kräussl and Logher (2010) find that unsigned paintings have no
significant negative impact on the auction price. Ma (2011) examines the China painting market
using auction data of paintings by top 66 Chinese painters from 2000 to 2009. The study
considers 61 variables for oil paintings and 38 variables for Chinese traditional paintings, such as
artist name, life and death, size, creation time, signature, materials, auction house and auction
season. Weng (2012) uses the Hedonic regression to analyze the top10 priced Chinese
contemporary artists from 2000 to 2011. The results show that size of artworks, medium,
reputation of auction houses, period of creation, season of auction sales, reputation of artists, and
years all significantly affect the price of contemporary art. Wang and Feng (2015) focuses on the
Chinese auction market and use double-log Hedonic regressive model to analyze the impact of
auction season, auction address, creative time and painting type on price of paintings by two
Chinese painters, Huang Yong-yu and Wu Qing-xia, in the 2014 spring auction season.
A number of potential factors may take effect underlying the soaring art auction price. This
study examines the key factors that influence the auction price of Chinese paintings. We use art
auction data spanning from 1995 to 2014 of paintings by one of China’s most famous modern
painters, Xu Beihong. We adopt the Hedonic pricing model to analyze the determinants of the
artwork’s prices. Our results show that the paintings sold at foreign auction houses, such as
Sotheby’s and Christie’s, are more expensive than those auctioned off within mainland China,
especially when the auctioneers are small mainland companies with little market power.
Moreover, we demonstrate that certain physical characteristics of the artwork, which are behind
customers’ tastes and preferences towards Chinese arts, have a significant positive impact on the
prices. For instance, colorful oil paintings with the painter’s signature are more likely to sell at
higher price than a sketch with flowers and birds as the subject depicted. Our findings may help
experts and investors to predict the price trend and to evaluate the possibility for appreciation.
Section 2 discusses the rapid development of Chinese art auctions. Section 3 describes our
data source and models for estimation. Section 4 presents our main empirical results, including
both descriptive statistics and regression analyses. Section 5 concludes.
Determinants of Auction Price on Chinese Art Market
3
2. Auctions and the Chinese Art Market
As elsewhere, bidders compete for Chinese art works in both domestic and international auction
houses. Unlike the Western art market, which is affected by the global economic downturn,
sales of Chinese art work expand exponentially in the recent decades, as reflected by both the
average prices and numbers of transactions. At the end of 2011, China accounted for 30% of
global art sales and became the world’s biggest art market. China’s fast-growing economy,
which underlies the emergence of a class of wealthy investors from the country’s top-tier income
group, fosters the boom of the artwork sales.
There are three major reasons for auction prices to escalate on the Chinese art market. First,
there is surging demand for art from China’s new rich due to a wealth effect. Fine Chinese art
works attract both art collectors and investors. Most of these customers come from the top-tier of
the country’s income rank, as prices of the masterpieces are well beyond the affordability of
average middle-class Chinese. Figure 1and Figure 2 show the average prices and the number of
transactions between 1995 and 2014, respectively. Only 41 artworks were sold in 1995, at an
average price of RMB ¥400,000, as compared to 646 artworks and an average price of nearly
RMB ¥3,600,000 at the peak of the market in 2011. Sales dropped after 2011, yet the average
price stayed robust and regained an upward trend in 2014. On the other side, China’s new rich is
getting even wealthier. The country’s Gini coefficient rises from 0.34 in the early 1990s to 0.47
in 2014, having peaked at 0.491 in 2008. The top 1% income group held a third of the nation’s
wealth, and the disparity keeps on expanding. The soaring number of transactions means the
wealthiest Chinese collectors and investors make purchases more frequently; and the escalating
price indicates that they spend more heavily at each of these transactions.
Figure 1 Average Auction Prices of Chinese Artworks between 1995 and 2014
Ye, Wang, and Huang
4
Figure 2 Number of Chinese Artworks Sold between 1995 and 2014
Second, due to an inelastic supply, Chinese artworks, especially those from deceased
masters, yield a higher-than-average return to investors. Compared with other means of
investment for China’s new rich, purchasing and holding artworks proves to be a more stable
source of income. First, unlike assets such as the real estate, investment in Chinese art is less
likely to be affected by government regulations or macroeconomic policies. At the micro level,
Chinese government established a real-estate registration system in recent years, to enforce
regulations on land management and property registration, and to set up a real-estate tax in the
near future. At the macro level, China’s central bank has tightened bank credit in 2014 in an
effort to balance the growth of different sectors in the economy. This measure imposes a
downward pressure on the real-estate market, which is unpromising news for real-estate
investors. Second, unlike investments in hedge fund or private equity, investment in artworks is
subject to less systematic risk. This risk is associated with the overall performance of the
financial market. China’s financial market has become more volatile than the global one in
recent years, making the related investment options less attractive to those wealthy but
conservative investors.
Third, the participation of European and US auction houses, such as Sotheby's and
Christie’s, has a significant impact on the Chinese art market. An increasing number of
international auction houses are interested in auctioning off Chinese art, especially those rare and
exceptional pieces.
Furthermore, the founding of Asia-Pacific Economic Cooperation (APEC) and the frequent
communication between China and Association of Southeast Asian Nations (ASEAN), both help
to boost the Chinese art market in the Great China region and Southeast Asia.
3. Data and Model
This paper uses auction data from 1995 to 2014 on paintings of Xu Beihong, a famous Chinese
painter. We focus on Xu’s paintings as he was regarded as one of the most influential Chinese
artists in the first half of the 20th century, bridging between traditional Chinese art themes and
western painting techniques5.Our dataset comes from China’s largest art-auction search engine,
5
Xu Beihong (Chinese: 徐悲鴻; 1895 -- 1953) was a Chinese painter. He was primarily known for his Chinese ink paintings of
horses and birds and was among of the Chinese artists to articulate the need for artistic expressions that reflected a modern
Determinants of Auction Price on Chinese Art Market
5
www.artron.net, including 4006 auction transactions of Xu’s paintings during a span of 20 years.
Table 1 presents the summary statistics of the number of sales and average auction prices by year.
Table 1 Summary Statistics on Auction Prices (RMB ¥) of Xu's Paintings from 2005 to 2014
Sale
Year
Obs.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
41
37
30
28
25
53
55
69
122
227
249
193
281
262
302
484
646
356
309
237
Average
Price
Std Dev.
256,466
291,966
197,949
303,652
143,770
131,926
325,703
475,011
196,529
260,247
210,339
334,964
304,780
955,102
326,030
486,679
355,627 1,202,556
604,878 1,706,201
852,154 1,767,874
1,246,702 4,603,205
1,435,708 4,937,255
766,877 1,139,899
1,296,543 1,954,634
3,209,771 12,297,072
3,380,841 11,631,700
3,426,854 8,502,315
3,018,694 4,156,901
3,537,719 5,029,784
Minimum Maximum
Price
Price
35,098
44,000
22,000
22,000
17,600
6,600
20,900
6,600
5,500
5,280
5,486
6,578
5,280
5,000
8,960
10,640
6,325
8,640
10,170
13,610
1,540,000
1,925,000
528,000
2,255,000
1,320,000
2,146,235
10,654,301
2,860,000
6,270,000
17,050,000
22,000,000
53,880,000
72,000,000
6,944,000
12,880,000
171,360,000
266,800,000
105,000,000
32,480,000
46,000,000
Average Average Price
Size
per Chi2
4.44
5.03
3.79
4.89
4.86
3.77
3.83
3.82
3.93
4.08
3.85
4.33
4.40
3.83
4.18
4.23
3.99
4.00
4.02
3.80
57,768
39,323
37,941
66,666
40,430
55,804
79,503
85,415
90,424
148,373
221,400
288,134
325,955
200,216
309,878
758,668
847,819
856,488
751,573
931,711
All auction prices of the 4006 observations are converted to nominal Chinese Yuan. The
mean and standard deviation of average prices are RMB ¥2,117,125 and RMB ¥6,963,802,
respectively, with single-sale minimum price at RMB ¥5000 in 2008 and single-sale maximum
price at RMB ¥266,800,000 in 2011. For the ease of comparison, we normalize the auction
prices to price per Chi2, a traditional Chinese unit of length6. The mean painting size in our
dataset is 4.07 Chi2 and the normalized average price RMB ¥519,621 per Chi2.
In the empirical analysis, we consider two sets of variables as determinants of the auction
price of each individual piece of artwork. The first set of explanatory variables refers to locations
China at the beginning of the 20th century. He was regarded as one of the first artists to create monumental oil paintings with
epic Chinese themes, showing his high proficiency in an essential Western art technique. (From Wikipedia, access at:
https://en.wikipedia.org/wiki/Xu_Beihong)
6
Where, 1 Chi equals 33.3cm (1.094 ft) and 1 Chi2measures an area of 1108.89 cm2.
6
Ye, Wang, and Huang
of auction houses, the major supplier of Xu’s paintings on the art market. There are three types
of auction houses: oversea companies, big companies in the mainland, and small company in the
mainland. The first category refers to auction companies outside mainland China; the second
category includes China Guardian, Beijing Poly, Beijing Hanhai, Beijing Council, Beijing Hua
Chen, Beijing Rongbao, Duoyunxuan and Sungari; and the rest in our dataset falls into the third
category.
The second set of explanatory variables refers to the physical characteristics of Xu’s
paintings. These characteristics affect buyers’ tastes, shift the demand curve, and ultimately
influence the equilibrium price. Several physical characteristics of Xu’s paintings are under
consideration: size, signature, subject, type, and color of the paintings. As stated above, all
paintings’ sizes are converted into Chi2, the Chinese measure of area. Moreover, any Chinese
buyers believe that a painting looks more authentic with the painter’s signature, hence we
consider “with signature’’ and “without signature’’ as important characteristics of the artwork.
Furthermore, buyers may consider certain types of paintings, the color of the painting, and
paintings on certain subjects more valuable than the others. Therefore, we consider that Xu’s
paintings on five different subjects (beast, flowers and birds, landscape, figure, and still life), of
four different types (traditional Chinese painting, oil painting, sketch, and gouache& watercolor
painting), and with or without color (black-white or colorful).
We adopt the Hedonic pricing method to find the determinants of auction prices of Xu’s
paintings. Let Pi denote the auction price of a given painting. Pi is a function of explanatory
variables and can be expressed in reduced-form equations incorporating all supply-side and
demand-side variables. We adopt two forms of the regress and, namely, the linear form and the
log-linear form of the Hedonic regression model:
Where TR stands for the number of transactions, YR is the selling year, and SZ is the size of a
given painting. Dummy variables OVS and MLS represent oversea auction houses and mainland
small companies, respectively. Taste-related dummy variables include SIG (with painter’s
signature), FLB (flower and birds), LSP (landscape), FIG (figure), STL (still life), OIL (oil
painting), SKT (sketch), GWC (Gouache and watercolor), and CLF (colorful painting). The error
terms are denoted as and in each model.
Determinants of Auction Price on Chinese Art Market
7
4. Empirical Result
4.1 Descriptive Statistics
As noted above, physical characteristics of the paintings play an important role in customers’
demand, and the auction price. Table 2 classifies the 4006 observations by painting type. Out of
the 4006 transactions, there are 3832 traditional Chinese paintings, 107 oil paintings, 55 sketches
and 12 gouache and watercolor paintings. Although traditional Chinese paintings account for
95.7% of the total transactions, the corresponding average price is the second-lowest among all
types of paintings. Gouache and watercolor paintings are of the smallest quantities supplied but
the most expensive, at an average price of RMB ¥6,763,012, followed by oil paintings, at an
average price of RMB ¥6,626,079.
Table 2 Auction Prices (in RMB ¥) of Xu's Paintings by Type
Type
Obs.
Average
Price
Std Dev.
Traditional
Chinese
3832 1,997,392 6,613,856
Paintings
Oil Paintings 107 6,626,079 17,893,487
Sketch
55
673,652 1,401,452
Gouache and
Watercolor
Paintings
12
6,763,012 7,559,880
Minimum
Price
Maximum
Price
Average Average Price
size
per Chi2
5,000
266,800,000
4.09
487,898
5,486
31,360
102,350,000
9,460,000
3.64
3.06
1,819,425
220,476
29,700
46,000,000
6.37
1,061,569
Table 3 Auction Prices (in RMB ¥) of Xu's Paintings by Subject
Subject
Obs.
Average
Price
Beast
2,069 2,202,196
Flowers and
1557 1,282,772
Birds
Landscape
Figure
126
252
Still Life
2
Std Dev.
Minimum Maximum
Price
Price
Average Average Price
Size
per Chi2
4,585,238
5,280
105,000,000
4.34
507,477
2,701,650
5,000
32,200,000
3.59
357,619
2,185,159 6,275,489
6,554,782 22,570,335
5,486
5,720
67,200,000
266,800,000
3.32
5.31
658,675
1,234,658
29,700
418,000
1.33
168,552
223,850
1,440,538
Table 3 classifies the observations by subjects painted. Beast paintings account for more
than a half of all transactions (2069 out of 4006), but rank the third-lowest in terms of the
average price of RMB ¥2,202,196. The low price may due to an ample supply of horse paintings
in this category, since the horse is Xu’s favorite and most frequently portrait subject. Table 4
categorizes the observations by color and by Xu’s signature, respectively. Colorful paintings are
Ye, Wang, and Huang
8
scarcer in quantity, and sell at a much higher average price of RMB ¥2,569,047. Similarly, fewer
paintings have Xu’s signature on them, and the average price is 1.6 time higher than the whiteblack paintings. Overall, colorful paintings with the painter’s signature are the most likely to sell
at the highest price.
From the supply side, the location of auction houses also influences the paintings’ market
price. Table 5 shows the number of transactions and auction prices by location of auction houses.
Small auction houses in mainland China are the most popular ones, as they account for 47% of
all sales (1892 of 4006). Paintings sold at oversea auction houses have the highest average price
at RMB ¥2,673,013. This may either come from a reputation effect of the oversea companies, or
from a self-selection effect of the paintings being auctioned overseas.
Table 4 Auction Prices (in RMB ¥) of Xu's Paintings by Color and Painter's Signature
Average
Minimum Maximum Average
Average
Color
Obs.
Std Dev.
Price per
Price
Price
Price
Size
Chi2
Black and
2305 1,783,625 3,392,991
5,280
55,913,000
4.11
434,495
White
Colorful 1,701 2,569,047 9,912,294
5,000 266,800,000
4.03
637,042
With
1,793 2,665,134 9,114,399
5,000 266,800,000
3.98
669,515
Signature
Without
2213 1,673,121 4,476,470
5,280
72,000,000
4.15
403,137
Signature
Table 5 Auction Prices (in RMB ¥) of Xu's Paintings by Auction Houses
Auction
House
Oversea
Company
Mainland
Big
Company
Mainland
Small
Company
Average
Average
Price per
size
Chi2
Obs.
Average
price
Std Dev.
Minimum
Price
Maximum
Price
422
2,673,013
5,414,822
17,802
72,000,000
4.34
615,375
1692
2,517,371
9,027,552
5,280
266,800,000
4.14
608,640
1892
1,635,376
4,777,594
5,000
105,000,000
3.96
413,446
4.2 Regression Results
We adopt the ordinary least square (OLS) method to estimate the linear and log-linear regression
models. For paintings with multiple transaction records, we only keep the last-time auction price.
This reduces our sample size to 3109, deleting 897 price records from the paintings’ previous
Determinants of Auction Price on Chinese Art Market
9
transactions. Estimation results are shown in Table 6. Most of the parameters have the expected
sign and are statistically significant.
Table 6 Regression Estimations for the Linear and Log-linear Models.
Explanatory Variables
Price
Log(price）
Intercept
-323.051***
-547347999***
(13.056)
(59645654.06)
Sale Year
0.167***
271960.195***
(0.00651)
(29738.304)
Size
0.119***
565652.546***
(0.00721)
(32955.340)
Overseas Company
0.290***
-123561.913
(0.0870)
(397370.772)
ML Small Company
-0.820***
-1396848.65***
(0.0565)
(258206.279)
Signature
0.670***
946473.08***
(0.0529)
(241626.171)
Flowers and Birds
-0.481***
-730865.577***
(0.0561)
(256209.250)
Landscape
-0.223
-484720.969
(0.162)
(738104.8478)
Figure
0.0264
3541959.151***
(0.126)
(577573.103)
Still Life
-0.805
-781471.633
(1.041)
(4755978.198)
Oil
1.357***
3932692.827***
(0.182)
(830660.580)
Sketch
-0.429*
-3482537.217***
(0.233)
(1065239.027)
Gouache and Watercolor
0.761
2016191.937
(0.558)
(2547202.055)
Colorful
0.151***
556804.815**
(0.0542)
(247781.366)
R Square
Adjusted R Square
Number of observations
0.372
0.369
3109
0.171
0.167
3109
Notes: (1) Standard errors are in parentheses.
(2) Significance level: *** p<0.01, ** p<0.05, * p<0.1.
The number of transactions of a painting has a significant positive impact on its auction
prices. On average, if a painting is sold for one more time, the price will increase by 32.5%. This
10
Ye, Wang, and Huang
result confirms the intuition regarding arts as an asset: the more frequent the market transaction
takes place, the higher the appreciation will be. Moreover, the sale year has a significant positive
impact on a painting’s price too. The average increase in prices is 16.7% year by year. This is
partially due to the wealth effect of the investors. China’s economic growth, together with the
expansion of the investors’ overall wealth, fosters the boom of the art market sales.
The size of a painting also has a significant positive impact on the auction prices. The
auction price increases by 11.9% for every one Chi2 increment in the painting’s size. This
finding is different from Nahm (2010), who shows a non-linear relationship between price and
size. There are a few possible reasons for the difference in our empirical results. The first one is
the samples being used in these studies. We use data of Xu’s painting, while Nahm (2010)
focuses on the Korean art market. Secondly, the Xu’s larger-size paintings are more likely to be
oil paintings, which are the most expensive type of all Xu’s artwork. Both of the abovementioned effects may account for the linearity in the price-size relation in our dataset.
Certain physical characteristics of a painting, such as painter’s signature, color, subject(s)
depicted, and type, play important roles in the painting’s price. There is usually a price premium
for paintings with the painter’s signature on it. In our dataset, the auction price is 67% or RMB
¥946,473 higher if the painting has Xu’s signature. Similarly, there is significant increase in
auction price when the painting is colorful. A Xu’s colorful painting is 15% or RMB ¥556,804
more expensive than the black-white ones. The positive impacts of signature and color may be
attributed to the scarcity of paintings with those characteristics. As shown in our dataset, either
colorful paintings or paintings with Xu’s signature accounts for a small proportion of all
paintings available at the art auctions.
Meanwhile, the subject(s) being depicted on the paintings matters. Xu Beihong is famous
for depicting “beasts’’, especially horses. In our regression, we use paintings with subject
“beast’’ as the benchmark group, and use dummy variables for paintings with other subjects,
such as “flowers and birds,’’ “landscape,’’ “figure,’’ and “still life.” The auction price of flowerand-bird paintings is 48.1% or RMB ¥730,865 lower than the price for beast paintings. It is also
interesting to note that the price of figure paintings is significantly higher than that of the beast
ones. One possible reason is the scarcity of Xu’s figure paintings, which are only 8.1% of all
3109 paintings transacted. In fact, Xu Beihong depicted figures much less frequently than he did
for horses. In addition, we find no significant effect for paintings of landscape or still-life.
Furthermore, the type of a painting also proves to be an important determinant of the
painting’s auction price. As shown in Table 2, we classify paintings in our dataset into four types,
of which the Chinese traditional paintings is the benchmark group, and the rest are treated as
dummy variables. We find a significant negative impact of sketch paintings on the auction price,
and no significant effect of Gouache-and-watercolor paintings, both compared to the benchmark
group. More interestingly, oil paintings are 135%, or RMB ¥3,932,693 more expensive than the
Chinese-traditional-painting group. Since our data comes from the Chinese art market, we would
expect Chinese traditional paintings to have the highest price, which might reflect Chinese
consumers’ taste towards the oriental culture. Nonetheless, there exists a significant price
premium for the western-style oil paintings. This finding, contradicting our usual educated guess,
may actually be a signal of the change of Chinese buyers’ taste as the country has been
extensively influenced by the western culture in the recent decades. In summary, some of the
paintings’ physical characteristics play a significant part in determining the auction price.
Colorful oil paintings with the painter’s signature are more likely to sell at higher price than a
sketch with flowers and birds as the subject depicted.
Determinants of Auction Price on Chinese Art Market
11
Finally, the supply-side variable, the location of auction houses, also has a significant
impact on the paintings’ price. Paintings auctioned at small mainland auction houses are 82%, or
RMB ¥1,396,848, cheaper than those auctioned by big mainland companies. This negative effect
might have arisen from the lack of market power of these small companies, or equivalently, the
price-making behavior or Oligopolistic collusion among big mainland auction houses. In
addition, we find that Chinese arts sold by overseas auction houses are 29% more expensive than
those sold by big mainland companies. There are two possible reasons for the price premium
associated with overseas auctions. First, overseas auction companies, such as Sotheby’s and
Christie’s, have long-lasting good reputation and provide better service than mainland companies.
For example, both Sotheby’s and Christie’s offer the option of anonymous telephone bidding,
hooking each unidentified bidder with a skillful agent. Wealthy Chinese investors can make
purchases oversea almost as easily as they could do in their homeland. Second, there is possibly
a self-selection effect for paintings being auctioned overseas. International auction houses aim at
attracting bidders worldwide and would not be willing to sell a painting if it fails to satisfy the
general interest of bidders from different culture backgrounds. Therefore, only a few exceptional
Xu’s paintings can be selected by those overseas auction companies. In other words, the price
premium exists not due to the location of auction houses, but because those paintings are truly
masterpieces.
5. Conclusion
Following China’s fast economic growth, in the past twenty years there is a wave of wealthy
Chinese investors and collectors bidding handsomely for Chinese paintings at art auctions
worldwide. The market of Chinese artwork has expanded rapidly since 1994, even in spite of the
global economic slowdown in the recent decade. Both the volume of artwork sales and the
auction prices maintain a steady upward trend. The market surge ensures a higher-than-average
return for investors who hold Chinese arts as assets, and attracts more new investors. This study
empirically examines the determinants of Chinese arts’ auction prices. Using art auction data
from 1995 to 2014, we adopt the Hedonic pricing method to evaluate the impact of several
potential factors. Our results show that the locations of auction houses have significant impacts
on the paintings’ prices. Chinese arts sold by overseas companies are more expensive, while
those sold by small companies in mainland China are cheaper. Meanwhile, we find that some
physical characteristics of the artwork, including a painting’s color, painter’s signature, and
subjects being depicted, have significant positive impacts on the prices. More interestingly, to the
contrary to our intuition, Chinese buyers do not value traditional Chinese arts as much as oil
paintings, a type of art which originated from Europe. This phenomenon may reflect a change in
Chinese buyers’ taste towards the Western world.
12
Ye, Wang, and Huang
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