Browsing by Author "Charlin, Ventura"

Now showing 1 - 8 of 8
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    A general framework to study the price-color relationship in paintings with an application to Mark Rothko rectangular series
    (2021) Charlin, Ventura; Cifuentes, A.
    We propose a general framework to study the relationship between the price of a painting and its color-related attributes. To this end we focus on four key aspects: dominant colors, features of the color palette, color harmony, and color emotions. We demonstrate the usefulness of this approach with an example based on Mark Rothko's post-1950 paintings (the “rectangular” series), and auction data from the 1994 to 2018 period. We identify two distinct price-color regimes in Rothko's market: (a) [1994-2005], a period in which prices are explained mainly by the growing popularity of the artist regardless of the color attributes of the paintings sold; and (b) [2006-2018], a period in which color-related attributes explain most of the prices. Furthermore, we find that in this second period, the dominant colors and the diversity of the color palette, are by far the most relevant attributes that influence the price; color harmony and color emotions hold almost no explanatory power during this period. Finally, we propose a new metric based on the Herfindahl Index to describe color diversity; this metric seems to be promising at characterizing the effect of the color palette on the price of a painting.
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    An options-based approach to analyze auction guarantees in the art market
    (2020) Charlin, Ventura; Cifuentes, Arturo
    Auction-house guarantees are becoming a common feature in the art market. We analyze these guarantees within the framework of financial options. This approach allows us to derive analytical (closed-form) expressions to value these positions, considering both, the case in which the painting is sold, and the case in which the painting goes unsold ("bought in"). In addition, we present several risk metrics that are useful to describe from an intuitive viewpoint the exposure of the auction house, and that of a third party (in case the auction house decides to layoff, fully or partially, the risk associated with offering such guarantees). We demonstrate that the expressions we derive satisfy the put-call parity relationship, and we further validate these formulas with a Monte Carlo simulation applied to a realistic example. We also show that the risk associated with such guarantees is lower than what is commonly believed by market practitioners, and we expose the dangers of relying on the Black-Scholes model to value such guarantees. Finally, having explicit expressions to assess the risk involved in these guarantees helps to bring more transparency to a notoriously opaque segment of the art market.
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    Art-secured lending: a risk analysis framework
    (2020) Charlin, Ventura; Cifuentes, Arturo
    In recent years, art-secured lending has grown in both size and popularity. Yet, this business still lacks a well-accepted approach to assess the risks involved. To that end, in this study, we identify the three types of risks involved in an art-secured lending operation and present a framework to assess their combined effects via a Monte Carlo simulation. In addition, we derive some useful closed-form expressions that are suitable when the collateral consists of only one painting. To help decision makers and risk managers, we introduce a number of risk-related metrics that provide a detailed characterization of the lending operation risk profile. We conclude that with the customary loan-to-value ratios currently prevalent in the art-based lending business (around 50%), the lender's exposure is quite bounded. Moreover, the advantages of having a diversified collateral, from a risk perspective, are relevant. Finally, we find that the uncertainty related to the value of a painting is much more important than the uncertainty related to either the credit risk profile of a borrower or the artist's returns during the period that a loan remains outstanding.
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    ESG ratings: an industry in need of a major overhaul
    (Taylor and Francis Ltd., 2022) Charlin, Ventura; Cifuentes, Arturo; Alfaro Nicolás, Jorge
    The impetus for adopting ESG-sensitive investment policies has increased steadily since 2006, when the United Nations outlined its Principles of Responsible Investment (PRI). Recently, a new industry aimed at helping investors to make sound ESG-driven decisions has flourished: ESG rating agencies. We investigated the ratings provided by four leading rating agencies (ISS, MSCI, S&P, and Sustainalytics) to the companies in the S&P500 index. Using measurement theory techniques, we concluded that ESG ratings currently exhibit an abysmally low level of reliability (18.3%) and agreement (5.4%). This situation differs sharply not only with the levels of reliability and agreement found in credit ratings but also with the reliability and agreement found in areas where subjectivity plays an important role, for example, wine ratings. These findings challenge the claim that ESG ratings can be helpful to make investment decisions, as they suggest that the ESG ratings industry as a whole is in much disarray.
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    Perception, Preference, and Prices in Josef Albers' Square Series
    (2021) Charlin, Ventura; Cifuentes, Arturo
    Josef Albers' Homage to the Square series comprises a vast ensemble of compositions based on similar arrays of nested squares. The main difference among these paintings is the colors employed. Therefore, they constitute an almost natural experiment to explore color preferences. We focus on the relationship between the prices paid in public auctions for these paintings and their color attributes over a fourteen-year period. We describe the attributes of the color palette using several color-related metrics aimed at capturing dominant colors, color diversity and contrast, color harmony, and color emotions. We find that color-related metrics explain a great deal of the price variation in Albers' Squares series. Intriguingly, dominant colors and emotions are the key variables, while color harmony, contrast and diversity play no role at all. We also find that the market favors lighter tones and bluer hues. Additionally, the analyses reveal that Albers, judged by the prices commanded by his paintings, was a quintessential experimentalist - as opposed to a conceptual artist. That is, an artist who kept improving as he gained more experience playing with the same concept over and over. It is worth noting that using market prices to study color preferences or judge aesthetic merits can provide different insights regarding color preferences and color perception, given the fact that most color preference studies are carried out in experimental or artificial settings, where the subjects do not have any direct interests at stake.
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    Reliability and agreement of credit ratings in the Mexican fixed-income market
    (INCISIVE MEDIA, 2017) Charlin, Ventura; Cifuentes, Arturo
    Credit ratings play an important role in the bond market, as the regulatory framework of this sector is based on ratings. A critical assumption is that the ratings of all the rating agencies are equivalent, ie, they exhibit very close agreement. This paper, borrowing concepts from measurement, test and psychometric theories, explores this issue in the Mexican corporate bond market. The ratings of all three credit rating agencies (CRAs) show a high degree of inter-rater reliability (similar ordinal relationships implied by the ratings); they only exhibit a mild level of inter-rater agreement (the degree to which two CRAs give the same rating), and they reveal significant discrepancy in ranking in paired observations. In summary, the three CRAs give ratings that are not equivalent, as their respective distributions are dissimilar. Therefore, our results challenge the suitability of ratings as a useful metric for regulatory purposes, as they create the possibility of arbitrage (rating shopping).
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    Revenue-sharing agreements in the live entertainment industry: a practical risk analysis framework
    (2024) Charlin, Ventura; Cifuentes, Arturo
    Revenue-sharing agreements are very common in the live entertainment industry. Such agreements typically include a minimum revenue guarantee for the benefit of the entertainer, combined with a formula to split the revenue, in case the revenue exceeds the minimum guarantee. In essence, these are derivative contracts between the event organizer (O) and the entertainer (E). This study introduces several closed-form expressions to evaluate the risks associated with these contracts for both parties (O and E). These expressions enable the estimation of revenue for each party based on the type of agreement and the valuation of the embedded option. Notably, the expressions do not require an assumption of symmetrical information-O and E can have access to different sets of information. Additionally, the expressions are valid regardless of the risk profiles of O and E, which could be different. Finally, the usefulness of the approach is demonstrated with an example that includes a scenario analysis, that is, exploring how variations in the two key parameters defining the revenue agreement affect the revenues of both O and E.
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    The quality of the Argentinean Malbec and the weather in the Mendoza region
    (2023) Charlin, Ventura; Cifuentes, Arturo
    PurposeThe climate in Mendoza is significantly different from the climate in most global wine-making regions. This paper aims to explore the relationship between the quality of the Malbec wine from the Mendoza region and its weather. Design/methodology/approachThis study uses a multivariate regression model with fixed effects to assess how weather variations relate to wine quality. The Wine Spectator ratings are used as a measure of wine quality and to build a longitudinal data set of Malbec wine ratings from 1995 to 2020. The weather is described with several variables based on temperature, rainfall, humidity and cloudiness data from the Mendoza region. The model controls for wineries which are treated as fixed effects. FindingsThe results of this study indicate that the weather has a modest explanatory power when it comes to the quality of Mendoza's Malbec. Additionally, the analyses show that the wineries are more important than the weather to explain quality differences in the wines. These findings are in agreement with previous studies carried out in regions with stable weather such as California and Australia. Practical implicationsThe quality of Mendoza's Malbec depends more on the winery of origin than the year-to-year weather variations. Therefore, consumers should focus more on the winery and less on the vintage when making purchasing decisions. Additionally, given the relevance of the winery in relation to quality, the findings of this study indicate that future research efforts should focus on directly linking the wine ratings to quality-drivers behind the winery effects. Originality/valueTo the best of the authors' knowledge, this is the first study that explores the relationship between wine quality assessed through wine ratings and the weather in the Mendoza (Argentina) region. Most such studies have been done in connection with northern hemisphere wines.