Friday, November 21, 2008

Economic model explains bids on ancient coinage?

Professor J. Edward Taylor of UC Davis analyzed auction prices for Alexander the Great tetradrachms in his paper Valuing the Numismatic Legacy of Alexander the Great (2007).
... This paper uses a hedonic price modeling approach to analyze auction prices of the major coin type of Alexander the Great. The findings make it possible to identify the effects of specific coin characteristics on realized auction prices, sellers’ reservation prices (auction price estimates), discrepancies between realized and estimated prices, and the variability of auction prices around predicted prices, or auction price surprise.


By far the most important factors determining the realized auction price of Alexander tetradrachms are the grade and year of striking. A condition of “extra fine” or higher adds an estimated $339, or 78.7%, to the coin price .... If the coin is both “extra fine” and struck during Alexander’s lifetime, an additional premium of $1,034 (240.4%) is added. A descriptive of “rare” or “scarce” is associated with an increase in realized price of $591 (137.4%), “toned” with an increase of $133 (31.0%), and other positive traits, with an increase of $254 (59.0%).


If bidders value coin traits in the same way that the auction house does, there will be a one-to-one correspondence between the estimated and realized price, and the effect of all coin characteristics, controlling for this estimated price, will be nil. A positive effect of a given trait would imply that bidders place a higher value on the trait than the auction house, and the trait has an effect on the realized price that is not reflected in the dealer’s price estimate....
Professor Taylor used data from to support his conclusions. He also calculates that Alexander's tets appreciated by 8.9% between 2001 and 2006.

The paper only analyzes characteristics supported by the auction text. Many characteristics important to collectors, like Herakles having a handsome appearance or a recognizable lion skin, are not discussed.


RJO said...

It appears NGC is going to start slabbing ancients:

I don't think I'd be interested in a coin that was permanently sealed in plastic.

Ed Snible said...

It will be interesting to see if NGC can succeed where others have failed. Some people seem to fetishize the containers. A company even slabs comic books — a process which significanty obscures the storyline!

David Vagi is pretty smart and the article (or press release) says he has developed a new system for grading ancients. I hope he can teach the method. I believe NGC uses three graders and they are supposed to reach the same grade independently.

Unlike comic books or modern coins the artistic quality of an ancient can greatly vary between two specimens in identical preservation. This means that it won't be possible to safely buy ancients sight-unseen. That fungibility is the major reason slabbing works in the modern coin marketplace. Too bad Vagi didn't invent an easily explicable numerical method for evaluating artistic merit! (Such a scheme would also be useful for paintings.)

I don't like slabs even for moderns. I fear my taste is significantly outside the mainstream. I'd rather have fifty different XF coins than a single MS-70 coin. Vagi is quoted as saying "... third-party grading [of] ancients program [is] not only possible, but necessary." I hope he's wrong.

A few years ago I confessed to Vagi that I prefer an ancient coin in VG worth $200 because it's rare and maybe the finest known rather than a $200 coin in FDC. He thought that was rediculous. We'll see.

Regarding Taylor's paper I wonder if it has some flaws. For example, does having a known year mark increase the value, or are dated issues correlated with particular scarce mints.

RJO said...

I can imagine slabbing of ancients working in certain restricted contexts or for certain people. Common Roman Imperials, perhaps, or Alexanders -- and for people who don't have a deep interest in the history but want to collect a set or a few examples without really studying them. I could also imagine third-party grading catching on if it used several "axes" of description -- centering, metal, die, strike, wear, etc. -- rather than a single number. But for the most interesting ancients, to me at least, I can't see it becoming popular.

Ed Snible said...

A press release says NGSA will be slabbing 20% of it's upcoming auction.

Perhaps we are in a 'coin bubble'? The same press release says “... the collectible coin market has experienced a near 20-year growth cycle virtually unaffected by broader economic cycles. As a result, coin collectibles have blossomed into a $10 billion dollar industry in the United States. Coin certification is credited for much of that growth.”