Speculative trading and bubbles: Evidence from the art market

J.N.G. Penasse, Luc Renneboog

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We argue that extrapolative expectations drive boom-bust cycles in the postwar art market. Price run-ups coincide with increases in demand fundamentals but are followed by predictable busts. Predictable changes account for about half of the variance of five-year price changes. High prices coincide with many attributes of speculative bubbles: trading volume, the share of short-term trades, the share of postwar art, and volatility are all higher during booms. In addition, short-term transactions underperform long-term transactions. Survey evidence further confirms the link between beliefs, prices, and volume dynamics as in models in which extrapolative beliefs fuel speculative bubbles.

Original languageEnglish
JournalManagement Science
DOIs
Publication statusE-pub ahead of print - Sep 2021

Keywords

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

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