Bubbles and Trading Frenzies: Evidence from the Art Market

J.N.G. Penasse, L.D.R. Renneboog

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Abstract

The art market is subject to frequent booms and busts in both prices and volume,
which are difficult to reconcile with models where agents are rational and
hold homogenous beliefs. This paper shows that (i) volume is mainly driven by
speculative transactions; (ii) positive price-volume correlation is pervasive across
art movements, and is larger for the most volatile segments of the art market; (iii)
volume predicts negative long-term returns, a relation that is statistically and economically large. Overall, our evidence supports the bubble model of Scheinkman
and Xiong (2003), which predicts that speculative trading can generate significant
price bubbles, even if trading costs are huge and leverage is impossible.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages49
Volume2014-068
Publication statusPublished - 13 Nov 2014

Publication series

NameCentER Discussion Paper
Volume2014-068

Keywords

  • art market
  • bubbles
  • return predictability
  • auction
  • trading volume

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    Penasse, J. N. G., & Renneboog, L. D. R. (2014). Bubbles and Trading Frenzies: Evidence from the Art Market. (CentER Discussion Paper; Vol. 2014-068). Finance.