Local Art in an International Market

The current research examines the presence of a home bias in the Hong Kong market for contemporary art. Home bias, rooted in the academic fields of marketing and behavioural economics, reflects consumer preferences for domestic products. Therefore, in the context of this analysis, a home bias is reflected in a preference for artworks made by Chinese artists. The research approached the assessment of this concept through three economical measurements provided by the literature: price developments, descriptive statistics (sales volumes and volatility), and sensitivity to macroeconomic developments. The analysis draws on a dataset of 7577 auction results from auctions in the modern and contemporary category held between 2012 and 2024 in the Hong Kong locations of Christie's, Phillips and Poly Auctions. To analyse the price developments, the research employs a hedonic regression model incorporating interaction terms. These terms are the composite of dummy variables reflecting the artists regions of origin and the years between 2012 and 2024, enabling the observation of region-specific price developments over time. Besides aiming to reveal a home bias, this stage of the analysis also focusses on whether general region-of-origin effects affect the prices for the regions: Asia excluding China, Europe and North America. The results of this section indicate that region of origin effects influence the prices of all regions under consideration. Contradicting a potential home bias, artworks by Chinese artists are outperformed by those of European artists. However, this arguably does not reflect a preference for European artworks among local buyers, since European artworks sold in Hong Kong generally belong to the highest segment of the market where prices are set on an international stage. The assessment of descriptive statistics revealed that Chinese artworks consistently account for a disproportionate share of total sold lots across the sample period. Furthermore, the volatility observed in the returns of artworks by Chinese artists is considerably lower than those observed for the other regions. To assess the sensitivity to macroeconomic developments, a Shapley value regression is conducted. This regression enables one to compute the contributions to R- squared related to the specific independent variables in the model. In the context of the current research this model was employed to assess the explanatory power local, regional and global GDP- growth rates have over the returns on artworks by artists from the distinct regions under consideration and returns in the overall dataset. The results of this analysis indicate that prices in the overall Hong Kong art market are considerably set by economic developments in China. Combining the results indicate that Hong Kong hosts a relatively stable and large market for Chinese artworks, while the market as a whole is rooted in Chinese economic developments. Therefore, the research draws the conclusion that a home bias is present in the Hong Kong market for contemporary art.