Analysis of the joint distribution of stock and art indices: Attempt of a copular approach

Nikita Petrov () and Tatiana Ratnikova
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Nikita Petrov: National Research University Higher School of Economics, Moscow, Russian Federation

Applied Econometrics, 2018, vol. 52, 46-61

Abstract: The aim of this work is to study the relationship between traditional financial and stock indices and indices characterizing the profitability of the art market. The discovery of such a relationship allows to optimize the choice of the investment portfolio structure and hedge risks. The use of traditional tools for analyzing correlation dependencies (for example, VAR-models), based on the hypothesis of joint normal distributions of the analyzed indicators, is ineffective here. The approach of copulas seems more appropriate because of the possibility to take into account non-linear hierarchical structures of interconnections. To simulate the joint distribution function of returns of several indices (on Matisse paintings, on painting in general, prices of gold, shares of art companies and S&P500 index), an attempt was made to use nested Archimedean copulas of various configiurations. Based on the available data, it can be concluded that the distribution of returns of the above listed indices is sensitive to the configuration of the copula. The analysis of paired copulas in most cases did not allow detecting links between the indices. However, taking into account the hierarchy in the structure of the copula allows to see that the dependence of a pair of yields on «financial» indices (S&P500 and Shares) and the Matisse art- index is higher than the relationship between this pair and Art Global Index (on painting in general) and Gold.

Keywords: art market; price indices; art indices; hedonic price function; multilevel regression; joint distribution; Archimedean copulas (search for similar items in EconPapers)
JEL-codes: C15 C21 C43 C58 D44 G15 (search for similar items in EconPapers)
Date: 2018
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