When a Master Dies: Speculation and Asset Float

Abstract

The death of an artist constitutes a negative shock to his future production; it permanently decreases the artist’s float. We use this shock to test predictions of speculative trading models with short-selling constraints. Symmetrically to Hong et al. (2006), where an increase in float decreases turnover and price, an artist’s premature death leads to an increase in prices and turnover. We document that, as predicted by our model, premature death increases prices (54.7%) and secondary market volume (63.2%) permanently, and this effect is larger if an artist dies young or is more famous.

Keywords: Speculative Bubbles, Asset Float, Short-Sales Constraints, Heterogeneous Beliefs, Art Auction

JEL Classification: G12, P34, Z11, D44