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 language | English |
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Journal | Management Science |
DOIs | |
Publication status | E-pub ahead of print - Sep 2021 |
Keywords
- art market
- bubbles
- return predictability
- auction
- trading volume