Efficient market hypothesis in the art world

Havana, 21 October 2016 – The researcher in charge of the project Fidel Micó Catalogue Raisonné (FMCR) is pleased to announce relevant findings on the primary market of the painter Fidel Micó. The influence of new information on the stock market has been well-documented, at least, from 1969 (Int. Econ. Rev. 10 (10): 1), and postulated as the “efficient market hypothesis”. Observations of this phenomenon basically suggest that “unanticipated public information is efficiently incorporated into the stock market” (Stu. Bus. & Econ. 8 (2): 60 – 67), but reports of these financial processes in other markets are not usual. A good example is the art market where information asymmetry is the dominant force.

Six events seem to have been influential in the primary market of the painter Fidel Micó. Four group exhibitions in local galleries (2003 - 2004) were the starting points of a sudden demand growth. More than 20 paintings were sold at the artist’s studio by that time. After a falling in 2005, the effect of the International Art Fair “Artbo 2005”, in Bogotá, was remarkable in 2006 when Micó sold 12 paintings in one year. It is interesting to note that a similar effect was observed after Micó’s paintings were shown in exhibition at the 48th Annual Coconut Grove Arts Festival in February 2011. It may be concluded that the demand of Micó’s art has reached between 10 and 12 paintings per year after group exhibitions in different countries. Therefore, the impact of a solo exhibition in the primary market of this artist could be stronger.

The first two peer-reviewed articles dealing with Micó’s art (Art Documentation. 34 (2): 349 – 353, and J. Mass Comm. & Journalism. 5 (3): 251) were published in 2015, but these and a group exhibition in Mexico, without impact on the media, did not yield the expected demand growth. Measurable results of the strong form of the efficient market hypothesis were not observed when abundant insider information was published from 2012 (Catalogue Raisonné, Virtual Galleries, and Books), which suggests that the weak form of the hypothesis is prevalent in this case. These findings also suggest the extreme volatility surrounding the primary market of the painter. A deeper investigation on this issue could include extending data to price in the primary and secondary markets after group and solo exhibitions, and expanding the analysis to the impact of other types of artistic events. Art investors should pay more attention to these phenomena for designing realistic business strategies, and closely watch market development of the contemporary Cuban art, because this is an artistic movement with unusual characteristics and a wide price range between 5 000 and 400 000 USD (Wall Street Journal, Dec. 19th, 2014).

Art investors can benefit from this type of findings by active participation in the entire process for developing the market of emerging and established artists that have not received enough recognition to keep stable price profiles. Obviously, demand fluctuations result in price oscillations destroying business plans intended for making partial investments that do not include the whole process of market development. Incomplete investments attract collectors to the primary market until the end of the window time opened after new information has been efficiently incorporated into the art market, temporally improving demand. Consequently, investors cannot get maximum profit, because it was harvested at the primary market where artists could not keep stable price profiles in absence of enough public recognition. Particularly, the market of this artist looks like a financial call option for bulls, without excluding bears and pigs, but not for chickens. Taking into account the available data of recent successful stories of Cuban landscape paintings at major auction houses, sales of Micó’s paintings could range between 10 and 12 million USD per year from a strike of 500 000 USD, assuming probability between 95 and 100%, and annual volatility between 30 and 40%. Three years later, the fear market value of any Micó’s painting could range between 2 and 3-fold the strike.

Contact
José A. Buxadó, MSc.
Researcher in charge of the project
Fidel Micó Catalogue Raisonnée (FMCR).
Rodríguez Nº 14, entre Maboa y Rabí, apto. 1,
Rpto. Santos Suárez, Municipio 10 de Octubre,
La Habana, Cuba.

The Fidel Micó Catalogue Raisonné is a research project devoted to investigate the career of the Cuban contemporary painter Fidel Micó. This project has been submitted to the Catalogue Raisonné Scholars Association and the International Foundation for Art Research.

Rodríguez Nº 14, entre Maboa y Rabí, apto. 1, Rpto. Santos Suárez, Municipio 10 de Octubre, La Habana, Cuba.

This release was published on openPR.