Rate of return to investment in American antique furniture.

• Author: Graeser, Paul
• Position: Communications

1. Introduction

   Most research on the market for "collectibles" has focused on their potential for long term price appreciation. Formal and informal estimates of the rate of return on visual art, especially paintings, are common |1; 2; 4; 6; 10~. An interesting exchange on bottled wine as an investment is provided by Krasker |8~ and Jaeger |5~. Recently, Ross and Zondervan |9~ analyzed the investment market for Stradivarius violins.

   The research strongly suggests that paintings as a group are a poor long-term investment. Ross and Zondervan |9, 539~ conclude the Stradivarii ". . . may give a return in excess of the long-term real rate of interest of 2.5 per cent if taxes are absent and the user benefits are significant," but they are unable to establish a clear indication of user benefits. A possible exception to these negative assessments is bottled wine. Jaeger |5, 590~ shows that correcting Krasker's |8~ storage cost estimate and taking a time period that bridges recessions (to which all wine prices are very sensitive) yields a substantial premium rate of return on fine wines over the T-bill rate. Her explanation |5, 584~ is that bottled wines improve in quality up to an (uncertain) peak year, which can range from ". . . 20-40 years in the case of some reds, while a few refuse to retire at 65," after which their market value drops sharply; we see here an apparent influence on the wine market of user benefit.(1)

   This paper will extend the above research by estimating rates of return on American antique furniture (hereafter, "antiques").

2. Antique Furniture Prices

   Data

   By far, the most extensive data base of antique prices is provided by Ralph and Terry Kovel |7~. Their mail surveys and personal research yield almost a thousand antique furniture price quotes yearly. In the Kovel's data base, "Prices are the actual asking price, although the buyer may have negotiated to a lower figure . . . each price is one you could have paid for the object" |7 (1987), p. v.~. In other words, these are raw data, directly from the showroom. But the Kovels also omit items of no interest to collectors, such as "used" furniture and old furniture in bad condition. They omit survey responses with ambiguous, incomplete or inconsistent data. And they omit outliers--extremely high prices due, in their opinion, to "'auction fever'" |7 (1990), iii-v~. For the Kovels, the behavior of typical American collectors defines "antique" furniture.

   Regarding opportunity costs, we follow precedent. We compare the investment "yield" implicit in the behavior of antique prices with the yield on U.S. Treasury 90-day bills |3~.

   Data Management

   Generally, unlike Stradivarius violins, bottled wines, etc., one cannot trace the market value of a given piece of antique furniture over time. The exceptions are those...