See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/5149748

The law of one price, noise and "irrational exuberance": The auction market
for Picasso prints

Article  in  Journal of Cultural Economics · February 2007

DOI: 10.1007/s10824-007-9046-7 · Source: RePEc

CITATIONS READS

11 114

2 authors:

Pauline M. Shum James E. Pesando

York University University of Toronto
34 PUBLICATIONS   357 CITATIONS    18 PUBLICATIONS   305 CITATIONS   

SEE PROFILE SEE PROFILE

All content following this page was uploaded by Pauline M. Shum on 21 March 2016.

The user has requested enhancement of the downloaded file.

J Cult Econ (2007) 31:263–277
DOI 10.1007/s10824-007-9046-7

ORIGINAL ARTICLE

The law of one price, noise and ‘‘irrational

exuberance’’: the auction market for Picasso prints

James E. Pesando Æ Pauline M. Shum

Received: 6 November 2006 / Accepted: 10 August 2007 / Published online: 23 October 2007

Springer Science+Business Media, LLC 2007

Abstract We use prices realized for Picasso prints at auctions worldwide, as well
as the 100 prints that comprise his Vollard Suite, to test the law of one price: the
proposition that identical art objects sold contemporaneously should command the
same price regardless of the auction house or geographic region where the sale takes
place. Picasso is the most prolific printmaker of the twentieth century and, from
1977 to 2004, his prints appreciated in price significantly faster than the prints of
modern masters as a whole. We find that Picasso prints sold in the United States
command higher prices than in Europe. However, prices realized at Sotheby’s in
New York are no longer higher than at Christie’s in New York, nor at Kornfeld than
at other auction houses. We find evidence of ‘‘irrational exuberance’’ in the tran-
sitory nature of the extraordinary prices realized for the Picasso prints included in
the 1997 sale of the collection of Victor and Sally Ganz at Christie’s in New York.
More generally, we find substantial noise in auction outcomes, a result well known
to savvy auction goers.

Keywords Art market
Picasso prints
Law of one price

Noise in auction outcome

JEL Classification Z11
G11
G14

J. E. Pesando
P. M. Shum
Institute for Policy Analysis, University of Toronto,
140 St. George Street, Suite 707, Toronto, ON, Canada M5S 3G6
e-mail: pesando@chass.utoronto.ca

P. M. Shum (&)
Schulich School of Business, York University,
4700 Keele Street, Toronto, ON, Canada M3J 1P3
e-mail: pshum@schulich.yorku.ca

123
264 J Cult Econ (2007) 31:263–277

1 Introduction

Picasso is the most prolific graphic artist of the twentieth century and his prints are
the most frequently sold at major auction houses worldwide. In light of this fact, the
auction market for Picasso prints is a natural laboratory in which to explore several
issues of interest to economists in general and to students of the art market in
particular.
The law of one price holds—abstracting from regulatory or other barriers that
may make it costly for buyers or sellers to exploit price differences—that an
identical object should command the same price in all markets when sold
simultaneously. Since prints are multiples, different impressions of the same print—
‘‘identical objects’’—are frequently offered for sale at auctions worldwide at
essentially the same point in time. As a result, the auction market for prints—unlike
other areas of the art market—is a market in which the law of one price can be
tested. Do the prices realized at auction for Picasso prints satisfy the law of one
price, or are there systematic differences in the prices realized by the simultaneous
sales of different impressions of the same print at certain auction houses or in
certain geographic regions?
Economists, responding to recent events, actively debate whether prices in the
markets for common stocks and for housing may exhibit ‘‘irrational exuberance.’’
Do prices realized for Picasso prints at auction occasionally exhibit ‘‘irrational
exuberance,’’ reaching unsustainable levels that cannot be justified by ‘‘fundamen-
tals’’? If so, how would one bring evidence to bear on this issue?
Savvy auction-goers have long known that the presence or absence of a single
bidder can significantly alter the price realized at auction on any given day. As a
result, there may be substantial ‘‘noise’’ in auction outcomes. Are prices realized by
the simultaneous sale at auction of different impressions of the same Picasso print
similar, or are these prices subject to wide and perhaps random variation? How
important is the noise in auction outcomes and can its importance be readily
quantified?
This article addresses these questions in detail, using prices realized at auctions
worldwide for Picasso prints. We do so for a sample that comprises all of Picasso’s
prints and for a more homogeneous subsample, the 100 prints executed by Picasso
during the period 1930–1937 and known as the Vollard Suite. Our results are made
more interesting and timely by the finding, reviewed in the next section of this
report, that the prints of Picasso have significantly outperformed the prints of a
broad index of ‘‘modern masters’’ since data on print sales at auctions worldwide
became available in 1977.
We organize the article as follows. First, we describe the data set and document
the fact that the auction prices realized by Picasso prints have appreciated much
more rapidly during the period from 1977 to 2004 than the prints of ‘‘modern
masters’’ (Chagall, Miro, Matisse etc.) as a group. Second, we examine evidence
regarding the law of one price, by comparing prices realized within a 30-day
window at auctions worldwide. Third, we review the prices realized for Picasso
prints sold in the 1997 sale of the collection of Victor and Sally Ganz at Christie’s in
New York, and document what we interpret as the existence of ‘‘irrational

123
J Cult Econ (2007) 31:263–277 265

exuberance’’ in these extraordinarily high prices. Fourth, we construct a simple

measure of the ‘‘noise’’ in auction outcomes (the mean absolute difference in
realized prices divided by the mean price) and demonstrate there is substantial and
apparently random variation in the prices realized for the simultaneous sale of
different impressions of the same Picasso print.

2 The data and investment performance of Picasso prints at auction

The source for our data on prices for Picasso prints realized at auction is the
Gordon’s Print Price Annual, first published in 1978 and in each year thereafter.
Each Annual contains a complete record of the prints sold at the world’s major
auction houses (Sotheby’s, Christie’s etc.) during the previous year. Each print is
identified by the artist and catalogue raisonné number. The Annual also indicates
whether the print has been signed by the artist, is unsigned, or has a stamp signature.
The Annuals are compiled from the catalogues prepared in advance of the sales and
the price lists released thereafter. Prices are inclusive of the buyer’s commission. If
the auction did not take place in the United States, prices are converted to US
dollars at the then exchange rate.
In addition to examining the prices realized at auction for Picasso prints as a
whole, we also examine the prices realized by a more homogeneous subset of Picasso
prints, the Vollard Suite. The Vollard Suite is a set of 100 etchings, aquatints,
engravings and drypoints executed by Picasso during the period 1930–1937.1
The Vollard Suite was published in 1939 in an edition of 300: 250 impressions on
small format paper; 50 impressions on paper with larger margins and three
impressions on vellum. Due to Vollard’s accidental death in 1939 and the impact of
World War II, most of the prints were not released to the commercial market until the
1950s. A significant number, but not all, of the individual impressions were
ultimately signed by Picasso. The vast majority of prints sold at auctions are from the
edition of 250. There is relatively little variation in the quality of the impressions, and
most impressions are in good condition. The prints are published in black and white,
so that the attenuation of colours—a potentially important source of variation in
price—is not a concern. There is a premium for impressions from the edition of 50,
although these prints rarely come on the market. Impressions from the edition of
three in vellum are very rare, and command a substantial premium when offered for
sale. For this reason, we have excluded the impressions on vellum from the sample.
To provide an initial perspective, we first examine the investment performance of
Picasso prints at auction, for the period 1977–2004. To do so, we estimate an index
of art prices using the three-stage version of the repeat-sale regression method
proposed by Case and Shiller (1987) and used, for example, by Pesando (1993) and
Mei and Moses (2002). A repeat sale occurs whenever the ‘‘identical’’ print (i.e.
artist, catalogue raisonné number, signed or not) is sold on two different occasions.
The repeat sales method yields an estimate, as well as the standard error, of each

1
The set is named after the art publisher Ambroise Vollard, to whom Picasso traded the 100 copper
plates in 1937.

123
266 J Cult Econ (2007) 31:263–277

value of the log-price index.2 The result is an index of nominal prices, which is
readily converted to real prices using data on the US consumer price index.3
We estimate three price indexes: (1) for a broad portfolio of ‘‘modern masters’’
excluding Picasso;4 (2) for Picasso prints as a whole and (3) for the Vollard Suite.
We summarize the behaviour of the nominal prices indexes in Fig. 1 and of the real
price indexes in Fig. 2.
The results, for all auctions worldwide, indicate that Picasso’s prints have proved
to be a far better investment than the prints of ‘‘modern masters’’ as a group, and
that the Vollard Suite has outperformed the Picasso market as a whole. The
(geometric) mean real returns are as follows, for the period 1977–2004: ‘‘modern
masters,’’ excluding Picasso: 1.19% per year; Picasso, all prints: 2.91% per year and
Picasso, Vollard Suite: 3.93% per year.
These differences in investment performance are economically significant. For
example, $100,000 invested in 1977 in a diversified portfolio of prints by the
‘‘modern masters’’ (excluding Picasso) would have increased—in real terms—to
$166,227 in 2004. In contrast, $100,000 invested in 1977 in a portfolio of the
Vollard Suite prints would have increased—in real terms—to $286,100.
In Table 1, for perspective, we provide data on the real returns to traditional
financial assets over the period 1977–2004, as well as to the Mei-Moses ‘‘All Art
Index’’ (comprising American, Impressionist and Old Master/Nineteenth century
paintings) for the near-identical period 1978–2003. Although the real return to
Picasso prints exceeded the real return to the prints of the modern masters, this real
return was well beneath the real return to stocks (8.55%) and to the ‘‘All Art Index’’
developed by Mei and Moses (6.47%). The real return to Picasso prints exceeded
only the real return to Treasury bills (1.93%).

2
A repeat sale occurs whenever the ‘‘identical’’ print (i.e. artist, catalogue, raisonné number, signed or
not) is sold on two different occasions. For each pair of sales, the log-price relative is calculated: the log
of the price on the later sales date less the log of the price on the earlier date. The log-price relatives are
then regressed on a set of dummy variables, one for each observation of the log-price index. For each
observation of the dependent variable, the dummy is set equal to +1 at the time of the second sale, –1 at
the time of the initial sale and 0 at all other times. If the initial sale is in the first time period, there is no
dummy variable corresponding to the initial sale. To address the fact that the errors in the repeat sales
regression may increase with the time between repeat sales, Case-Shiller propose a three-stage procedure
to lessen the weight assigned to repeat sales that are widely separated in time. First, the index is estimated
using Ordinary Least Squares (OLS). Second, the squared residuals are regressed on a constant term and
the time between sales. Third, the index is reestimated by generalized least squares (GLS) with each
observation divided by the square root of the fitted value in the second stage. For a discussion of the
issues related to the repeat-sale regression methodology, see Goetzmann and Peng (2002).
Due to the large number of repeat sales of prints, as well as the relatively short sample period, the
results that we obtain with OLS and with the Case-Shiller method are very similar.
3
Biey and Zanola (2005) also investigate the returns to Picasso prints, using data for the period 1988–
1995. The primary interest of Biey and Zanola is a comparison of the repeat sales, hedonic price model
and a hybrid model as strategies for calculating a price index for art. However, it merits note that their
results do mirror those obtained in Pesando and Shum (1999) and in our current article, but with a
different data set. For example, using repeat sales, Biey and Zanola also find a sharp correction in 1990 to
the bull market of the late 1980s.
4
These artists are: Chagall, Miro, Matisse, Whistler, Nolde, Heckel, Schmidt-Rottluf, Kirchner,
Kandinsky, Klee, Mueller, Bellows, Benton, Hopper, Munch, Renoir, Sloan, Vuillard, Braque, Bonnard,
Cassatt, Kollwitz, Laurencin, Leger, Rouault, Toulouse-Lautrec and Villon.

123
J Cult Econ (2007) 31:263–277 267

Nominal Price Indexes

Semiannual, 1977-2004
10.0
9.0

Nominal Price Index

8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1977_1

1980_1

1983_1

1986_1

1989_1

1992_1

1995_1

1998_1

2001_1

2004_1
Time

Picasso Vollard Suites All Other

Fig. 1 Nominal price indexes, semiannual, 1977–2004

Real Price Indexes

Semiannual, 1977-2004
3.5
Real Price Index

3.0
2.5
2.0
1.5
1.0
0.5
0.0
1977_1

1980_1

1983_1

1986_1

1989_1

1992_1

1995_1

1998_1

2001_1

2004_1

Time

Picasso Vollard Suites All Other

Fig. 2 Real price indexes, semiannual, 1977–2004

3 The Law of one price

Since prints are multiples, often published in editions of 50, 100 or more, different
impressions of the same print are often offered for sale at different auction houses
and/or in different geographic markets at essentially the same point in time. As a
result, the auction market worldwide for prints is a natural laboratory in which to
test the law of one price.
If an artist’s prints are actively sold in two or more geographically distinct
markets, the ‘‘law of one price’’ dictates that no significant price differences persist,
in the absence of regulatory or other barriers that may make it costly for buyers or
sellers to exploit price differences. Similarly, no significant price differences should
exist for prints sold at different auction houses, especially if the auction houses are
in the same geographic market.

123
268 J Cult Econ (2007) 31:263–277

Table 1 Annual real rates of return on alternative assets, 1977–2004

Asset class Real return (%)

Modern prints, excluding Picasso 1.19

Picasso, all prints 2.91
Picasso, Vollard Suite 3.93
Mei-Moses, All Art Index 6.47
US Stocks (Standard and Poor’s 500) 8.55
US Government Bonds 4.98
US Treasury Bills (180-day) 1.93

Notes: Returns were annualized using semiannual rates. The print price indices were estimated using
Case-Shiller (1987)’s three-stage least squares. The Mei-Moses All Art index is from Mei and Moses
(2005). These authors report a nominal return of 10.99%, which translates to a real return of 6.47%, for
the almost identical period 1978–2003

Ideally, one would like to compare the prices of identical prints that are sold in
different markets at the same moment in time. Unfortunately, this is not possible,
since the major auctions are staggered in order to facilitate participation by potential
buyers. To compare prices realized in different geographic regions or different
auction houses, one must specify a window within which sales are deemed to be
contemporaneous. There is an obvious trade-off. The wider the window, the greater
will be the number of sales of identical prints in the sample, yet the more suspect
will be the assumption that the sales are contemporaneous. For Picasso prints as a
whole, and for the prints that constitute the Vollard Suite, we focus on a 30-day
window, that is, on the sale of identical prints in different markets which occur
within 30 days of each other.5
Pesando (1993) examines the possible violation of the ‘‘law of one price’’ in the
auction market for modern prints. His most widely-cited finding is that, during the
period 1977–1992, prices realized for the prints of modern masters at Sotheby’s in
New York significantly exceeded (by 14%) the prices realized by Christie’s in New
York.6 Pesando and Shum (1996), for the period 1977–1993, find that the prices
realized for Picasso prints are significantly higher at Sotheby’s than at Christie’s in
New York, but that this difference—7%—is considerably less than the difference
for the prints of modern masters as a whole. When the sample is limited to prints
from the Vollard Suite, Pesando and Shum find that the mean realized price remains
higher—also at 7%—at Sotheby’s than at Christie’s in New York.
There is no obvious explanation of the ‘‘puzzle’’ of higher realized prices at
Sotheby’s than at Christie’s in New York. The mean difference in realized prices is
5
Our programme identifies the first sale of a particular print and then compares its price with the price of
all sales in the ‘‘other’’ market within the next 29 days. If there are no such sales, the programme identifies
the second sale of the print and repeats the procedure. After a comparison has been made, the programme
identifies the first sale after this window has elapsed and then continues. If there are two or more sales of
the print in the same market within the ‘‘window,’’ the average price is used in the price comparison.
6
Contrary to the ‘‘folklore’’ of the art trade, there was no evidence that the prices realized by certain
artists (such as the German Expressionists) were systematically higher in certain geographic markets
(such as Germany) than elsewhere (see Donson 1977).

123
J Cult Econ (2007) 31:263–277 269

less than the combined buyer’s and seller’s commission, so simple arbitrage is
excluded. Nonetheless, by shifting their activities between auction houses, buyers
and sellers could readily ‘‘undo’’ the observed price differences.
With 11 additional years of data (1994–2004), it is instructive to review these
earlier findings. If there is violation of the ‘‘law of one price,’’ either between
auction houses or geographic regions, economic forces should act so as to eliminate
this violation with the passage of time.
In this section, we re-examine the evidence for systematic price differences by
focusing on all of the prints of Picasso as well as the subset of prints that comprise
the Vollard Suite. To isolate the effects of outliers, we report the results when pairs
are excluded if the higher-priced print sold for more than double the price of the
‘‘identical’’ print.7
In Tables 2 and 3, respectively, we present tests of the law of one price for all
Picasso prints and for the Vollard Suite, using a 30-day window to identify the
‘‘contemporaneous’’ sale of different impressions of the same print. To explore the
issue of the persistence of the violation of the law of one price documented in Pesando
(1993) and in Pesando and Shum (1996), we present results from the full sample
period (1977–2004) as well as for two subperiods, 1977–1992 and 1993–2004.
In each row, we identify the two markets or auction houses that are being
compared; the number of paired observations within the 30-day ‘‘window’’; the
percentage of prices realized in the first market or auction house that exceed those
realized in the second (an asterisk represents significance at 5% against the null
hypothesis of a random outcome, i.e., 50% of realized prices higher in the first
market or auction house); the mean difference in price divided by the mean price (an
asterisk represents significance at 5% against the null hypothesis of zero difference);
and the mean absolute price difference divided by the mean price. To provide
information on how ‘‘contemporaneous’’ the matched pairs are, we also show the
shortest and the longest absolute difference in the number of days between the
paired sales, as well as the median absolute difference.8
Consider, for example, the comparison of the Picasso prints sold at Sotheby’s and
at Christie’s in New York (Table 2). For the full period 1977–2004, 43.07% of the

7
In addition to the large difference in realized prices that may occur for different impressions of the same
print, there are occasional errors or nuances in the data set itself. For example, in 1998, the price for Picasso
(Bloch Catalogue No. 1635, from the 347 Series) was $6,325 at Christie’s in New York on April 28th and
$145,500 at Sotheby’s in New York on April 30th. In fact, the price at Sotheby’s was for 66 different prints
from the 347 Series, starting with Bloch Catalogue No. 1635. In 1999, a Picasso print (Bloch No. 859) sold
for $266,500 at Christie’s in New York on May 3rd, but for only $134,500 at Sotheby’s in New York on
April 29th. In fact, the impression sold at Sotheby’s, although having the same catalogue raisoneé number,
was an edition proof that was signed on the reverse and not an ‘‘identical’’ print.
8
In order to eliminate catalogue errors and sharp differences in price due to condition problems, we
eliminate those observations in which the higher-priced print sold for more than double the price of the
paired print. In so doing, we reduce the total number of paired sales. For example, the number of paired
sales between the United States and London markets declines by a relatively large amount, from 244 to
218, when the filter is imposed. The number of paired sales between Sotheby’s and Christie’s decline by a
relatively small amount, from 140 to 137 in New York and from 58 to 56 in London, when the filter is
applied. The relatively large number of deleted observations when sales in the United States are compared
to those in London is due, presumably, to the presence of relatively minor auction houses which are more
likely to offer damaged prints for sale.

123
 270

Table 2 Law of one price: all Picasso prints 30-day window

Markets Number of pairs Percent positive Mean diff./mean price Mean absolute Absolute difference in sales dates

123
diff./mean price
1 2 Shortest Longest Median

Sample period: 1977–2004

US London 218 46.79 0.02 0.22 0 30 18
US Europe 222 59.46* 0.08* 0.24 0 30 16
London Europe 216 48.15 0.01 0.23 0 30 9
Chr (NY) Soth (NY) 137 43.07 0.01 0.16 0 12 2
Chr (Lon) Soth (Lon) 56 44.64 0.02 0.14 0 27 2
Kornfeld Rest of world 153 61.44* 0.04 0.22 0 30 7
Sample period: 1977–1992
US London 163 47.85 0.02 0.21 0 30 17
US Europe 115 54.78 0.09* 0.24 0 30 16
London Europe 119 41.18* 0.02 0.22 0 30 9
Chr (NY) Soth (NY) 90 33.33* –0.09* 0.16 0 12 2
Chr (Lon) Soth (Lon) 39 43.59 0.03 0.14 0 27 2
Kornfeld Rest of world 95 68.42* 0.08* 0.21 0 30 8
Sample period: 1993–2004
US London 55 43.64 0.04 0.24 1 29 20
US Europe 107 64.49* 0.07 0.24 0 30 16
London Europe 97 56.70 0.00 0.23 1 30 9
Chr (NY) Soth (NY) 47 61.70 0.12* 0.16 1 9 2
Chr (Lon) Soth (Lon) 17 47.06 –0.04 0.13 1 7 2
Kornfeld Rest of world 58 50.00 0.00 0.22 2 28 6

Notes: The 2· filter (see footnote 8) was applied in the above calculations. An asterisk (*) denotes significance at 5%
J Cult Econ (2007) 31:263–277
 Table 3 Law of one price: the Vollard Suite 30-day window
Markets Number of pairs Percent positive Mean diff./mean price Mean absolute Absolute difference in sales dates
diff./mean price
1 2 Shortest Longest Median

Sample period: 1977–2004

US London 70 50.00 0.04 0.17 2 30 15
US Europe 51 58.82 0.09* 0.20 0 30 16
London Europe 54 38.89 0.01 0.25 1 23 12
J Cult Econ (2007) 31:263–277

Chr (NY) Soth (NY) 49 40.82 –0.01 0.11 1 11 2

Chr (Lon) Soth (Lon) 16 43.75 –0.07 0.15 1 27 2
Kornfeld Rest of world 40 70.00* 0.11* 0.22 1 25 8.5
Sample period: 1977–1992
US London 55 54.55 0.05 0.16 4 30 14
US Europe 26 50.00 0.04 0.20 0 30 17.5
London Europe 39 30.77* 0.01 0.22 1 23 12
Chr (NY) Soth (NY) 30 26.67* –0.05* 0.10 1 11 2
Chr (Lon) Soth (Lon) 10 40.00 –0.13 0.15 1 27 2.5
Kornfeld Rest of world 34 73.53* 0.13* 0.20 1 25 8
Sample period: 1993–2004
US London 15 33.33 –0.01 0.20 2 29 21
US Europe 25 68.00 0.12* 0.20 1 30 14
London Europe 15 60.00 0.03 0.34 1 20 12
Chr (NY) Soth (NY) 19 63.16 0.04 0.13 1 8 2
Chr (Lon) Soth (Lon) 6 50.00 0.06 0.13 1 3 2
Kornfeld Rest of world 6 50.00 0.05 0.27 6 21 10.5

Notes: The 2· filter (see footnote 8) was applied in the above calculations. An asterisk (*) denotes significance at 5%
271

123
272 J Cult Econ (2007) 31:263–277

prices realized in the paired sales were higher at Christie’s (and, thus, 56.93 at
Sotheby’s), and the mean difference in price was equal to only 1% of the mean sales
price. Neither result is statistically significant. The sales were, in fact, almost
contemporaneous, with a median absolute difference in sales dates of only 2 days.
This result, however, obscures a dramatic difference in outcomes in the two
subperiods. During the period 1977–1992, only 33.33% of realized prices in the
paired sales were higher at Christie’s, and the mean difference in price divided by
the mean price was –9% (i.e., realized prices were 9% less, on average, at
Christie’s). Both of these departures from the null hypothesis of equal outcomes (i.e.
the law of one price) are statistically significant at 5%.
In the later subperiod (1993–2004), these results are reversed. A full 61.70% of
realized prices are higher at Christie’s and the mean difference in realized prices is
12%: prices, on average, are 12% higher at Christie’s. Further, this mean difference
in realized prices is statistically significant at 5%.
Thus the widely-cited violation of the law of one price that occurred between
prices realized at Christie’s and at Sotheby’s in New York during the period 1977–
1992 did not persist. Indeed, the result was reversed. The results for the Vollard
Suite confirm this finding. During the period 1977–1992, only 26.67% of the paired
sales realized higher prices at Christie’s, while the mean difference in price was –
5% (i.e. higher, on average, by 5% at Sotheby’s). Both are statistically significant
results. During the period 1993–2004, 63.16% of the paired sales realized higher
prices at Christie’s, with a mean price difference of 4% in favour of Christie’s.
Although neither result is statistically significant, the outcome differs sharply from
that observed in the earlier period.
The region-by-region and auction house-by-auction house tests of the law of one
price are set out in Tables 2 and 3. We draw attention to the following substantive
findings.
For Picasso prints as a whole, the only statistically significant difference in
realized prices identified in the period 1977–1992 that persisted to the later period
1993–2004 is the higher prices realized in the United States than in Europe. In the
1977–1992 period, the mean realized price is 9% higher in the United States, a
statistically significant difference. In the 1993–2004 period, this difference declines
to 7%, which is not statistically significant, but the percentage (64.49%) of paired
sales that are higher in the United States is statistically significant. For prints from
the Vollard Suite, this difference is also significant for the period 1993–2004 as well
as for the full sample, but not for the original sample period 1977–1992.
The two significant violations in the law of one price documented in the earlier
studies, the higher prices realized at Kornfeld than in other auction houses
worldwide and the higher prices realized at Sotheby’s than in Christie’s in New
York, are no longer present in the extended sample 1993–2004. The mean absolute
price difference divided by price, a measure of the variability in realized prices
across auction houses or geographic regions is large, suggesting that there is a
substantial amount of noise in auction outcomes. We return to this issue later in our
article.
A natural question is whether differences in costs (commissions or taxes such as
Droit de Suite) might explain the differences in realized auction prices that appear to

123
J Cult Econ (2007) 31:263–277 273

persist for long periods of time, as well as the changes in price differences that we
have documented.
The prices quoted in the Gordon’s Print Price Annuals are inclusive of the
buyer’s premium and VAT on the buyer’s premium that is mandatory for each buyer
to pay. Not included in the prices are (1) any VAT due on the sales price; (2) any
sales tax that may be payable and (3) any Droit de Suite. As a result, the auction
prices used in our study represent the minimum price that a buyer is required to pay
on a print purchased at auction.
For comparison of prices realized at Sotheby’s and Christie’s in New York, we
ignore the fact that retail buyers (but not dealers) who reside in New York are required
to pay the NY state sales tax. There is no reason why this fact should result in any
systematic bias in our comparison of prices realized at auction at Sotheby’s and
Christie’s in New York. As a result, this omission can explain neither the higher prices
realized at Sotheby’s than at Christie’s during the period 1977–1992 as documented in
Pesando (1993), nor the reversal of this finding in the period 1993–2004.
During our sample period (1977–2004), there was no Droit de Suite (Artists’
Resale Right) in the UK. However, some prints that are imported from outside the
European Union to be sold at auction under temporary importation may attract VAT
(currently at 5%) on the hammer price. This fact should not result in a systematic
bias in our comparison of prices realized at auction at Sotheby’s and Christie’s in
London. It is not possible to determine whether this fact may distort the comparison
between US and UK sales, since it is not possible to determine how many buyers
actually pay the state sales tax in New York or the VAT (if any) due on the hammer
price on lots sold in the UK.
For prints sold in Switzerland, where Kornfeld is located, there is no Droit de
Suite in our sample period. The subsequent introduction of Droit de Suite cannot,
therefore, explain our finding that prices realized at Kornfeld are no longer higher
than those realized at other auction houses worldwide (which, in our sample, are
primarily auction houses in the US or the UK.).
Finally, it merits note that consignors should be concerned with the sum of the
buyer’s premium, the seller’s premium and other taxes (including Droit de Suite). If
buyers’ have fixed reservation prices for each print, and are concerned with the total
price they will pay, the full incidence of these charges falls on the seller. Differences
in these charges create an incentive for consignors to sell works of art at auction
venues where the sum of those charges is low. However, such ‘‘arbitrage’’ by sellers
should not affect realized auction prices, but only the relative volume of prints sold
in different auction venues.

4 ‘‘Irrational exuberance:’’ the Ganz sale

The term ‘‘irrational exuberance’’ is well known to financial economists, especially

those who study the markets for common stock or for housing. A natural question is
whether the auction market for modern prints—at least on occasion—may be
characterized by the presence of ‘‘irrational exuberance.’’

123
274 J Cult Econ (2007) 31:263–277

In fact, the highly successful sale of the art collection of Victor and Sally Ganz
by Christie’s in New York in November 1997 provides an excellent case study of
such overpricing.9
Included in the Ganz sale were five prints by Picasso. In Table 4, we show the
realized prices for these five prints. Shown, as well, are both the estimate for each
print and the highest auction price realized for each print in the 3 years preceding
the Ganz sale and in the 3 years subsequent to the Ganz sale.
As is apparent from Table 4, there is strong evidence of ‘‘irrational exuberance’’
in the prices realized at the Ganz sale. Tete de Femme, with an estimate of $28,000–
34,000, sold for $123,500 with buyer’s premium. The highest price for an
impression of this Picasso print in the 3 years preceding the Ganz auction was
$39,199; in the 3 years subsequent to the Ganz auction, $42,250. Further, during the
years 1998–2000, the price of Picasso prints at auction increased by more than 10%.
The Ganz sale, of course, represents the outcome of a single auction. Further, in
the art trade, it is commonly held that items sold at single-owner sales tend to
command premium prices. These caveats notwithstanding, the Ganz sale provides
an illuminating example of how enthusiastic bidders may push art prices to levels
well beyond their ‘‘fundamental’’ values, as evidenced by the sharply lower prices
realized by the five Picasso prints in their subsequent appearances at auction.10

5 The ‘‘noise’’ in auction outcomes

The presence of ‘‘irrational exuberance’’ in the market for modern prints is

suggestive of a more general result: the possibility that the same print may
command quite dissimilar prices in auction sales that are contemporaneous, or
nearly so. We refer to this possibility as the potential ‘‘noise’’ in auction outcomes.
A natural measure of ‘‘noise’’ is the mean absolute price difference divided by
mean price, for prints sold contemporaneously at different auction houses.11 In

9
See William Landes (2004) for an excellent, and detailed, review of the Ganz sale.
10
One referee finds unpersuasive our suggestion that ‘‘irrational exuberance’’ is evident in the
exceptional prices realized for Picasso prints sold at the Ganz auction.
To our knowledge, none of the impressions (which are numbered and thus identifiable) sold at the
Ganz sale have as yet been re-offered at auction. As a result, we cannot state that any of the impressions
sold at the Ganz sale has been subsequently sold at a substantially lower price.
Subject to the above caveat, we believe that the case is very strong that—when offered for resale—
these impressions are likely to sell for dramatically lower prices than those realized in the Ganz sale.
We have now reviewed sales of (different impressions of) these prints subsequent to the period (1998–
2000) cited in Table 4. Auction prices continue to be dramatically lower than the prices realized at the
Ganz sale. For example, Tete de femme (B.1065) sold for $32,250 in 2002 (well beneath $90,500) and
Deux femmes sur la plage (B. 789) sold for $12,189 in 2002 (well beneath $34,500). In the print market,
unlike some other segments of the art market, provenance is not a marker for authenticity and is not likely
to enhance market/resale value on this account. Finally, three of the five Picasso prints sold at the Ganz
sale were published in 1962. Picasso prints published at this relatively late date, when his art was already
so expensive, tend to be of relatively uniform condition as well as of the same quality.
11
Most auction houses prefer not to offer more than one impression of a print at auction. If two or more
impressions are available from consigners, most auction houses will defer the sale of one impression to
their next sale.

123
J Cult Econ (2007) 31:263–277 275

Table 4 Irrational exuberance? Picasso prints in the November 10, 1997 sale of the collection of victor
and Sally Ganz
Picasso print (Bloch catalogue number) Estimate Sales Highest auction price
price
Preceding Succeeding
3 years 3 Years

Tete de femme (B.1067) $28,000–34,000 $123,500 $39,199 $42,250

Deux femmes sur la plage (B.789) $ 7,000–9,000 $34,500 $8,052 $15,307
Visiteurs divins dans l’atelier (B.770) $12,000–16,000 $51,750 $15,426 $12,494
Tete de femme (B.1065) $28,000–34,000 $90,500 $40,250 $38,520
Le chapeau à fleurs (B.1149) $25,000–35,000 $79,500 $35,500 $46,575

Notes: All prices include the buyer’s premium

Table 5 The ‘‘Noise’’ in auction outcomes: 1977–2004

Picasso prints, all (%) Vollard suite (%)

All auction sales worldwide 21 18

US vs. London 22 17
US vs. Europe 24 20
London vs. Europe 23 25
Christie’s (NY) vs. Sotheby’s (NY) 16 11
Christie’s (London) vs. Sotheby’s (London) 14 15
Kornfeld vs. Rest of world 22 22

Notes: ‘‘Noise’’ is measured by the mean absolute difference in price, divided by the mean price, for
different impressions of the same print sold within 30 days of each other. The 2· filter (see footnote 8)
was applied in the above calculations

Table 5, we present evidence of the amount of ‘‘noise’’ in auction outcomes for

Picasso prints and for prints from the Vollard Suite, for the period 1977–2004. We
calculate the mean absolute price difference for all sales of Picasso prints that take
place within 30 days, as well as for the Vollard Suite. In addition, we calculate this
measure of ‘‘noise’’ for sales that take place only at certain auction houses (such as
Christie’s and Sotheby’s in London or Christie’s and Sotheby’s in New York) or in
certain geographic regions (such as the US and Europe).
For the broadest measure of auction outcomes, comprising Picasso prints in
which two impressions of the same print sold at any auction house worldwide within
30 days of each other, the mean absolute difference in price is equal to 21% of the
mean price.12 This measure of noise is slightly larger in the period 1993–2004 than
in the period 1977–2002, at 22% rather than 20%.
The smallest difference in realized prices is for contemporaneous sales of Picasso
prints at Sotheby’s and Christie’s in London, where the mean absolute price

12
This measure of ‘‘noise’’ is calculated after the filter has been applied to eliminate cases where the
higher-priced print sold for more than twice the price of the lower-priced print.

123
276 J Cult Econ (2007) 31:263–277

difference of impressions of the same print sold within 30 days of each other is only
14%. For Picasso prints sold at Christie’s and Sotheby’s in New York, the mean
absolute difference in realized prices is higher, at 16%.13
For prints from Picasso’s Vollard Suite sold within 30 days of each other at any
auction house worldwide, the mean absolute difference in price is equal to 18%.
This measure of noise ranges from a low of 11% for prints sold at Christie’s or
Sotheby’s in New York to a high of 25% for prints sold at auction houses in London
versus Europe.14

6 Summary and conclusions

The prints of Picasso, and especially those from the Vollard Suite, appreciated more
rapidly during the period 1977–2004 than did the prints of other modern masters
(Chagall, Matisse, Miro, etc.) as a whole. The real return to a diversified portfolio of
Picasso prints was 2.91% during this period; to a portfolio of prints from the Vollard
Suite, 3.93% per year.
Prints, as multiples, represent a segment of the art market in which it is possible
to test the law of one price: that ‘‘identical’’ art objects, sold simultaneously at
auction, should command the same price. Earlier work by Pesando (1993) and by
Pesando and Shum (1996) found evidence of the violation of the law of one price in
the market for modern prints in general, as well as in the market for Picasso prints.
Over the period 1977 to 1992, realized prices for different impressions of the same
print, sold within 30 days of each other, were systematically higher at Kornfeld than
at other auction houses and—most surprisingly—at Sotheby’s than at Christie’s in
New York. When the additional years 1993–2004 are examined, both violations of
the law of one price disappear, consistent with the operation of market forces. For
Picasso prints as a whole, as well as those from the Vollard Suite, realized prices
throughout the period 1977–2004 are systematically higher in the United States than
in Europe.
There is evidence of ‘‘irrational exuberance’’ in the prices realized by the Picasso
prints sold from the collection of Victor and Sally Ganz at Christie’s in New York in
November 1997. Realized prices dramatically exceeded both the auction estimates
and the highest prices previously realized for impressions of these prints at auction.
Further, as evidence that these prices could not be justified by ‘‘fundamentals,’’
prices (for different impressions of these prints) realized at subsequent auctions
were sharply lower, in spite of the continued rise in the market for Picasso prints at
auction.
There is no natural gauge of the amount of ‘‘noise,’’ or random variation in
realized prices, that one should observe in a well-functioning market. Subject to this
caveat, we provide evidence of what we find to be substantial noise in auction

13
In Tables 2 and 3, we show the mean absolute difference in price divided by the mean price for all of
the auction-by-auction and region-by-region comparisons that we explore.
14
We again note that differences in taxes may add to the noise in these pairwise comparisons of auction
outcomes.

123
J Cult Econ (2007) 31:263–277 277

outcomes. For Picasso prints sold within 30 days of each other at any auction house
worldwide, the mean absolute price difference is equal to 21% of the mean realized
price. For prints from the Vollard Suite, this measure of noise is only slightly lower,
at 18%. This fact does serve to highlight one useful insight for those seeking to
acquire Picasso prints (and, we strongly suspect, art objects in general) at auction:
leave an order (written) bid if interested in a particular print, since the inherent
‘‘noise’’ may occasionally work in your favour.

Acknowledgements We thank Simiao Zhou and Lindsay Eng for excellent research assistance and the
three referees for very useful comments on an earlier draft of this article.

References

Biey, M. L., & Zanzola, R. (2005). The market for Picasso prints: A hybrid model approach. Journal of
Cultural Economics, 29, 127–136.
Case, K. E., & Shiller, R. J. (1987). Prices of single family homes since 1970: New indexes for four cities.
New England Economic Review, (September/October) 45–56.
Donson, T. B. (1977). Prints and the print market. New York: Thomas Y. Crowell.
Goetzmann, W., & Peng, L. (2002). The bias of the RSR estimator and the accuracy of some alternatives.
Real Estate Economics, 30(1), 13–39.
Landes, W. M. (2004). The test of time: Does 20th century American Art Survive? In V. A. Ginsburgh
(Ed.), Contributions to economic analysis: the economics of art and culture. Elsevier Science.
Mei, J., & Moses, M. (2002). Art as an investment and the underperformance of masterpieces. American
Economic Review, 92(5), 1656–1668.
Mei, J., & Moses, M. (2005). Beautiful assets: Art as an investment. Antiques and Fine Art, V(5),
(Anniversary), 34–35.
Pesando, J. E. (1993). Art as an investment: The market for modern prints. American Economic Review
83(5), 1075–1089.
Pesando, J. E., & Shum P. M. (1996). Price anomalies at auction: the market for modern prints. In
V. A. Ginsburgh & P.-M. Menger (Eds.), Economics of the Arts. Elsevier.

123
View publication stats