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

See all articles by Julien Pénasse

Julien Pénasse

Universite du Luxembourg

Luc Renneboog

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

José Scheinkman

Columbia University; Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 24, 2020

Abstract

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

Pénasse, Julien and Renneboog, Luc and Scheinkman, José, When a Master Dies: Speculation and Asset Float (March 24, 2020). CentER Discussion Paper Nr. 2020-010, Available at SSRN: https://ssrn.com/abstract=3560146 or http://dx.doi.org/10.2139/ssrn.3560146

Julien Pénasse (Contact Author)

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
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+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

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Tilburg Law and Economics Center (TILEC)

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Tilburg, 5000 LE
Netherlands

José Scheinkman

Columbia University ( email )

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Princeton University - Department of Economics ( email )

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609-258-6419 (Fax)

HOME PAGE: http://www.princeton.edu/~joses

National Bureau of Economic Research (NBER)

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