A random walk through Mayfair: Art as a luxury good and evidence from dynamic models

Rachel A.J. Pownall*, S. Satchell, Nandini Strivastrava

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


The movement of international art prices in conjunction with other asset prices is preliminary to our understanding whether art is a luxury good. It is well known that there are linkages between art market prices and equity prices. However, less is known about the structure of dependence between these variables and the influence of gold prices and sentiment. We analyse art prices, at the outset using Granger causality and error correction models (ECM) to capture the long term dynamics between art prices, equity markets, gold prices and investor sentiment. The dataset we use is unique and covers British art prices from 1895 to the present. Initial results do not give a complete picture of price movements or a fitting description of wealth effects; to rectify this we look at short term dynamics in the art market. We assume a regime switching model to describe the movement of prices using a threshold variable that drives prices into possibly locally explosive regimes. These results indicate a dynamic wealth effect in that high (low) stock prices lead to subsequent increases (decreases) in art prices. However, this approach means that elasticities are now stochastic, and we redefine what a luxury good is. This is further explored by directly calculating elasticities from our model and its variants to analyse properties of art as a luxury good. Our threshold approach gives deeper insight into the impact of different market conditions than conventional ECM and cointegration modelling. 

Original languageEnglish
Article number15
Pages (from-to)112-127
Number of pages16
JournalJournal of International Money and Finance
Publication statusPublished - Jul 2019

JEL classifications

  • c10 - Econometric and Statistical Methods and Methodology: General
  • c50 - Econometric Modeling: General
  • g10 - General Financial Markets: General (includes Measurement and Data)


  • Art prices
  • Cointegration
  • Granger causality
  • Luxury goods
  • Stochastic elasticities
  • Threshold models

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