When a Master Dies: Speculation and Asset Float
CentER Discussion Paper Nr. 2020-010
50 Pages Posted: 17 Apr 2020 Last revised: 25 Jan 2021
Date Written: March 24, 2020
The death of an artist constitutes a negative supply shock to his future produc- tion; in finance terms, this supply shock reduces the artist’s float. Intuition may thus suggest that this supply shock reduces the future auction volume of the artist. However, if collectors have fluctuating heterogeneous beliefs, since they cannot sell short, prices overweigh optimists’ beliefs and have a speculative component. If collectors have limited capacity to bear risk, an increase in float may decrease sub- sequent turnover and prices (Hong et al., 2006). Symmetrically, a negative supply shock leads to an augmentation of prices and turnover. We find strong support for this prediction in the data on art auctions that we examine.
Keywords: Alternative investment, Auction, Art auction, Short selling constraints;Trading Volume; Resell option;Pricing models;Economics of Art; artist death; premature deceas;
JEL Classification: G12; P34; Z11; D44
Suggested Citation: Suggested Citation