Speculative trading and bubbles: Evidence from the art market

J.N.G. Penasse; Luc Renneboog

Speculative trading and bubbles: Evidence from the art market

Research output: Contribution to journal › Article › Scientific › peer-review

Abstract

We examine the role of demand fundamentals and speculative trading in art price dynamics. We show that price run-ups are followed by predictable busts. Prices are positively correlated with proxies for art demand, in particular with the wealth of the top 1% earners, but increases in top wealth also predict low returns. Attributes of the price run-up, including price dispersion, volume, the share of short-term trades, and the share of Postwar Art all contribute to predicting future returns. We rationalize these findings in a stylized model of speculative trading where the impossibility to sell short affects the art price formation.

Original language	English
Journal	Management Science
Publication status	Accepted/In press - Apr 2021

Keywords

art market
bubbles
return predictability
auction
trading volume

Access to Document

https://dx.doi.org/10.2139/ssrn.2523854

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title = "Speculative trading and bubbles: Evidence from the art market",

abstract = "We examine the role of demand fundamentals and speculative trading in art price dynamics. We show that price run-ups are followed by predictable busts. Prices are positively correlated with proxies for art demand, in particular with the wealth of the top 1% earners, but increases in top wealth also predict low returns. Attributes of the price run-up, including price dispersion, volume, the share of short-term trades, and the share of Postwar Art all contribute to predicting future returns. We rationalize these findings in a stylized model of speculative trading where the impossibility to sell short affects the art price formation.",

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AB - We examine the role of demand fundamentals and speculative trading in art price dynamics. We show that price run-ups are followed by predictable busts. Prices are positively correlated with proxies for art demand, in particular with the wealth of the top 1% earners, but increases in top wealth also predict low returns. Attributes of the price run-up, including price dispersion, volume, the share of short-term trades, and the share of Postwar Art all contribute to predicting future returns. We rationalize these findings in a stylized model of speculative trading where the impossibility to sell short affects the art price formation.

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KW - return predictability

KW - auction

KW - trading volume

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