Academic journal article Economic Inquiry

Fiddling with Value: Violins as an Investment?

Academic journal article Economic Inquiry

Fiddling with Value: Violins as an Investment?

Article excerpt

I. INTRODUCTION

In this article, we analyze the prices of violins using two different datasets: one dataset includes 337 observations on repeat sales of the same violins at auction and at dealer sales starting in the mid-nineteenth century, and the other dataset includes over 2,500 observations on sales of individual violins at auction since 1980. The purpose of this article is to give some indication as to whether violins are a viable alternative investment that might be part of a diversified portfolio and to determine if some types of violins have had higher returns than other types of violins.

Despite the growing discussion of alternative investments in the economics and finance literature, the growing number of wealthy individuals, funds and syndicates that invest in violins, and the interest in violins as a collateralizable asset, the only previous study of violin prices published in an academic journal was a study by Ross and Zondervan (1989) of repeat sales of 17 Stradivaris. This dearth of academic analysis is most likely due to the difficulty in gathering information on the sale prices of violins. Compared to real estate and even art, the market for high-end violins is "thin" and many violins are sold through dealers rather than auctions, resulting in difficulty gathering the data.

To preview our results, overall real returns for the dataset on repeat sales for the period 1850-2009 have been approximately 3.5%. Real returns to the overall portfolio of individual sales at auction since 1980 have also been about 3.3%, not including transaction commissions. The price path has been stable with a slightly negative correlation to stocks and bonds. The overall returns mask differences in returns between different types of violins. It is believed that "better" violins are sold through dealers rather than through auction houses. Indeed, the real return on dealer sales for 1850-2008 was 4.32% and the real return to violins sold at auction for the same period was 2.86%. Since 1980, Modern Italian instruments sold at auction have increased steadily in price relative to Old Italian instruments sold at auction.

This article proceeds as follows. The violin market is discussed in Section II, and in Section III we discuss the data and our estimation methodology. In Section IV we present our regression results, and in Section V we interpret our regressions. We conclude in Section VI.

II. THE MARKET FOR VIOLINS

A. How the Market Works

Fiddles--the term used by dealers and collectors to refer to even the finest violins--are sold through both auction houses and dealers and also directly from one musician or collector to another. The main sellers and buyers of these instruments, other than dealers, are musicians, collectors (often foundations), and investors. Individual musicians have used various schemes to purchase a good instrument, including borrowing from banks that specialize in loaning funds against musical instruments and assembling syndicates to raise money. Most collectors, both private and institutional, loan out their instruments to talented musicians. The musician typically pays all insurance and maintenance costs (but not a rental fee); insurance costs range from about 0.5% to about 2% of the value of an instrument. There are also buyers who are interested in purchasing violins primarily as an investment, as part of a diversified portfolio. These instruments are then also loaned out to musicians, who pay insurance and maintenance.

Violins are sold through both auction houses and dealers. The relative size of the various markets is very difficult to gauge. Through conversations with dealers and analyzing our auction data, we speculate that auction sales make up between 10% and 20% of the market. One advantage of transacting through a dealer is that it is easier to borrow and try out the instrument (though auction houses also accommodate a small number of potential buyers in this manner). …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.