Speculative Trading and Bubbles: Evidence from the Art Market
CentER Discussion Paper Series No. 2014-068
74 Pages Posted: 26 Feb 2020 Last revised: 1 Dec 2020
Date Written: December 1, 2020
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: Suggested Citation