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Canary in the Art Market

Financial literacy is a common component of many QR courses.  Faculty cover basic material on loans and investment, with compound interest providing a great example of exponential growth.  Students tend to come into our classes very un-savvy with respect to financial planning, not really having any idea what a stock or bond is and even struggling with basic spreadsheets showing payment schedules for credit card debt.  The article, Why Investors are Watching Sotheby’s and the Art Market, gives a nice broad overview of different investment options and how they correlate.

art_correl

Understanding that super wealthy investors will spend more on art investments when the economy is strong makes intuitive sense, and allows us to discuss correlation in the context of investing.  Asking students to translate time-series line graphs like the ones above into more traditional scatterplots is a great exercise!

The authors discuss whether art “leads or lags” the market, and this provided a difficult question for the take home quiz.  Students struggled with this phrase more than I anticipated.  Once again the concept of co-variation proves much more subtle and complicated than most of us appreciate.

Q9 Art Market

  1. The article Why Investors are Watching Sothebys and the Art Market[1] discusses the auction house Sothebys.  Use the stock quote below for 11/16/2016 at 2:11 PM EST to compute:
    Sothebys quote

    1. Using total change given to compute original price.
    2. Using percent change given compute the original price.
    3. Using YTD (Year to Date) % change to compute the price at the start of the year.
    4. Why is there no PE ratio?
  2. The article says that Global art sales peaked in 2014 at $68.2 billion and then fell 7% in 2015.
    1. Determine the value of art sales in 2015.
    2. Sothebys fell “more than 60% from its 2014 highs before a rebound this year.”  Use CNBC.com and the chart feature to find the high price in 2014 and the ensuing low point.  Then compute the percent change to verify if it did indeed fall 60%.
  3. The next graphic shows “Art sales aren’t a direct proxy for the “real” economy. But they correlate strongly with more important indicators, particularly stocks and oil.”

    art_correl

    1. Explain what mean by saying art “correlates strongly” with stocks and oil.
    2. Why would they say researchers disagree about whether art leads or lags the market?
  4. In DLS the author gives the proportion of blacks (12.6%) and whites (82.9%) in 1996, and then in Table 4 gives the proportion of victimization and arrests.
    1. Use the numbers 41.1 and 7.4 (from Table 4) in a meaningful sentence.
    2. Which of the statistics in Table 4 (victimization or arrests) is disproportionate relative to the percentage of blacks and whites in the country?
    3. What possible reason does the author give to explain this disproportion?

 

[1] http://fortune.com/2016/09/22/investors-sothebys-art-market/

 

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