Speculative Trading and Bubbles: Evidence from the Art Market

CentER Discussion Paper Series No. 2014-068

7th Miami Behavioral Finance Conference 2016

74 Pages Posted: 26 Feb 2020 Last revised: 1 Dec 2020

See all articles by Julien Pénasse

Julien Pénasse

University of Luxembourg

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: December 1, 2020

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.

Keywords: Art Market; Bubbles; Return Predictability; Auction; Trading Volume

JEL Classification: G12, P34, Z11, D44

Suggested Citation

Pénasse, Julien and Renneboog, Luc, Speculative Trading and Bubbles: Evidence from the Art Market (December 1, 2020). CentER Discussion Paper Series No. 2014-068, 7th Miami Behavioral Finance Conference 2016, Available at SSRN: https://ssrn.com/abstract=2523854 or http://dx.doi.org/10.2139/ssrn.2523854

Julien Pénasse (Contact Author)

University of Luxembourg ( email )

4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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