Why record auction prices and a cautious art market are not contradictory

“Record prices do not always reflect a confident art market. Strong auction headlines can coexist with a weak underlying market because tighter money changes both prices and what reaches the block. Ziwen Chen explains why, when studying the art market, what does not trade can be as informative as what does. Last year appears to have been a stellar year for auctioned art. Christie’s and Sotheby’s , the world’s biggest auction houses, reported roughly $13.2 billion in combined sales. Sotheby’s sale of Gustav Klimt’s “Portrait of Elisabeth Lederer ” (pictured above), for $236.4 million, became one of the year’s defining headlines. Christie’s Old Masters sales rose 24 per cent . By the usual top-line measures, the art market looked stronger in 2025 than it had for the previous two years. Yet those headline numbers do not necessarily describe the market most buyers and sellers are actually experiencing. In 2025 Christie’s also reported $1.5 billion in private sales , suggesting that discretion remained highly valuable even as public auction totals improved. That matters because tighter money does not simply push all auction prices down at once. It changes which works come to market, which works clear and which segments still attract confident bidding. My recent research in Finance Research Letters and Economics Letters suggests that this split is not random. When monetary policy tightens, the auction market tends to polarise: top-tier works can hold up, or even strengthen, while weaker material and more speculative segments come under pressure. The result is a two-speed market that headline auction indices can easily miss. What the data show I study quality-adjusted quarterly auction indices across 14 art-market segments – covering different media, periods and geographies – between 1998 to 2023, and combine them with unexpected changes in interest-rate expectations in the 30 minutes around Federal Reserve announcements. For non-specialists, the logic is simple: by looking at what markets expected just before and just after a Fed decision, economists can isolate genuine policy surprises from the wider economic background. Following research by Michael Bauer and Eric Swanson I use a version of those surprises designed to reduce the so-called Fed information effect – the risk that markets are reacting not only to the policy move itself but also to what the Fed may be revealing about the economy. Two findings stand out First, tightening widens the gap between auction winners and losers. After a one-standard-deviation contractionary surprise, the top tenth of auction returns rises while the bottom tenth falls. Within one quarter, the distance between the two widens by about 7.5 percentage points. The average effect is much smaller. In other words, tighter policy does not produce one clean, market-wide decline. It stretches the distribution. The strongest results can look even stronger at the same time that the weakest deteriorate. Second, tightening produces a flight to quality inside the art market. In a separate paper , I show that Contemporary art underperforms 19th-century art by about 7 percentage points over the following year after a contractionary surprise. That is consistent with a familiar macro-finance pattern : when financing conditions tighten, capital tends to move away from segments most associated with speculation and towards assets with deeper consensus, longer track records and stronger provenance. Why headline indices can mislead This is where standard auction indices become difficult to interpret. They are useful, but they only observe works that actually sell. When money is tight, consignors can withdraw marginal works, auction houses can set more defensive reserves and sellers can shift pieces into private negotiations instead of exposing them to public failure. The public saleroom therefore becomes a filtered sample. The weakest potential outcomes are more likely to disappear from the data just when analysts most want to see them. As Orley Ashenfelter and Kathryn Graddy argued in their classic survey of auction economics, published in 2003, buy-ins, reserves and lot composition are central to understanding how art prices form. More recently, Arthur Korteweg, Roman Kräussl and Patrick Verwijmeren showed how endogenous selection can materially bias measured art returns. The implication is straightforward. During tightening cycles, a headline index can look flat or even resilient not because the market is broadly healthy, but because the weakest results never make it into the observable sample. Record prices at the top and caution underneath are therefore not contradictory. They are exactly what a selection-driven market should look like when financing conditions become more restrictive. Markets beyond art This matters for more than collectors. In January 2026 the Fed kept the federal funds target range at 3.5 to 3.75 per cent , a reminder that borrowing conditions remain restrictive even after the most aggressive phase of the hiking cycle. For banks, wealth managers and family offices using transaction-based indices to mark collections or judge collateral, that creates a practical problem: the same monetary conditions they want to monitor may also be making the reported price data look healthier than the underlying market. The point travels beyond art. Any market that relies on completed transactions to infer value – real estate, classic cars, wine or other collectibles – faces a similar risk. When sellers can wait, withdraw or transact privately. What does not trade can be as informative as what does. So as the spring sales begin in London and New York, the more useful question is not simply which lot made the highest price. It is what reached the block, what failed to clear, what was quietly diverted to private sale, and which segments still needed aggressive guarantees or careful estimate-setting to transact. That is the art market’s two-speed reality. Tight money does not just affect price levels; it reshapes market composition. Once that is recognised, the apparent contradiction between record auction results and broader caution disappears. The real signal is not only in what sold, but also in what did not. This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. 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