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Julien Pénasse studies the effect of artist death on the value of art

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Published on Monday, 07 June 2021

Around 1660, an Italian art dealer brought bad news to Rembrandt: his painting style was no longer in vogue and sold at lower prices. Soon after, Rembrandt disappeared and had the rumour spread that he had died. As a result, works by a "dead" Rembrandt sold for up to three times the normal price. This story, which features in a nineteenth-century play by Charles-Guillaume Etienne (1777–1845), illustrates the common view that works of art tend to be pricier after an artist dies.

Can this story teach us something broader about the economics of financial markets? It's not surprising that an artist's work becomes more expensive after death, especially if the artist dies young. Death is a negative supply shock, which should logically cause prices to increase. The supply/demand logic might also suggest that one should observe fewer transactions after an artist’s death. In contrast, theories of speculative trading predict an increase in volume after a negative supply shock. The larger the asset supply (e.g., the larger the number of stocks), the harder it is for speculators to move prices and to speculate.

In a paper forthcoming in the Review of Financial Studies, Julien Pénasse, Research Scientist within the Department of Finance at the Faculty of Law, Economics and Finance and co-authors Luc Renneboog (Tilburg University) and José A. Scheinkman (Columbia University, Princeton University, and NBER) study a sample of 2,236 artists (of whom 246 had died prematurely) and 57,997 auction transactions. By matching the group of artists who met their deaths prematurely with those who did not in terms of age cohort and reputation, then comparing the trajectories of the price and volume of sales of their respective artworks, the researchers found support for these theoretical predictions.

Firstly, premature death of an artist leads to an increase in prices by 54.7%, but also an increase in sales by 63.2%. Secondly, the effect of premature death remained present more than ten years after an artist’s premature death. Thirdly, the younger the artist at death, the larger the effect of death. And lastly, unknown artists do not experience the same phenomenon as better-known or famous artists. 

Even though the art market presents a number of differences with financial markets, the researchers adapted established models and created their own to take into account specific characteristics such as the inability to short sell, the lack of dividends associated with art investments and the random factor tied to the timing of the death of the artist. Remarkably, they found that the price impact of an artist’s premature death is quantitatively similar to what occurred during speculative episodes, including the internet bubble of the late 1990s, but with a more permanent effect.

We often like to think of art as something inherently unquantifiable, subjective, whose goal is to elicit an emotional response from the viewer. However, a rich literature shows that economics is useful to understand the art market. As the researchers have shown, the art market also provides a useful setting to understand financial markets and speculative dynamics.