Picking Picassos: Differentiating Artists by Gini Ratio as a Measure of Brand and Innovative Style

Abstract

This thesis is an exploration of art as a possible investment. Namely, the focus is on auction prices and returns (calculated using repeat sales), and attempting to find the correct determinants in these prices. There are many possible factors, including random chance, that are identified in the literature. One specific factor, which this paper focuses on, is the possible use of an artist’s Gini ratio, measured by the relative number of references in art history surveys for each of their most well-known works, in determining the type of innovation style they follow or the process by which they brand themselves. The hypotheses of this paper are twofold: first, the prices should demonstrate a higher spread with artists that have higher Gini ratios, and second, returns should be correlated with higher Gini ratios. The interpretation is similar to comparing a stock and a bond; low Gini ratios artists intuitively pose less risk, as all their pieces should be about the same amount of popularity, while high Gini ratio artists are more of a risk– which should then be compensated for by a higher return. Interestingly, while the higher variance in high Gini ratio artists is confirmed, the other hypothesis was not only statistically insignificant (due to the limitations in the data), but also demonstrated a negative regression coefficient from Gini ratio onto returns. This implies that while further study is required to ascertain this finding, the original hypothesis is reversed; it appears as if lower Gini ratio artists actually generate higher returns, on average and over long periods of time.