Modeling and Forecasting Price Indices for Objects of Art

Art market is not an ordinary market. The main feature of it is the fact that a painting is individual, unique, and specific good. Even the creator of this good cannot define a right price for it. It is customary to say, that masterpieces have two kinds of value: aesthetic value, and investing value. But there are no objective formulas and mechanisms to determine a price for a painting, unlike the case of financial instruments valuation. Art market is not transparent. In this paper some new models are built for art pricing mechanisms. It is based on experience from other articles. There is a hedonistic approach for estimation of masterpieces. In addition, multilevel (hierarchical) method of estimation group heterogeneity is presented in this paper for the first time. Different models in this paper have same explanation and predictive power. They are good in prediction prices in certain price interval. New conclusions about factors in pricing mechanism are made. Factors “signed by author” and “author’s experience” are relevant. Group heterogeneity estimation by multilevel models helps to explain how sale conditions (a year, an auction house, and a city) can affect the price of a painting. Also S&P 500 index is analyzed as a driver for art-market index. Such results help to look at the art-market at different angle and use these conclusions to work with art objects.