Pricing Dynamics and Herding Behavior of NFTs

Center for Financial Studies Working Paper No. 709, 2023

61 Pages Posted: 26 Jan 2023 Last revised: 14 Aug 2023

See all articles by Gilbert Fridgen

Gilbert Fridgen

Universite du Luxembourg

Roman Kräussl

Bayes Business School (formerly Cass); Hoover Institution, Stanford University

Orestis Papageorgiou

University of Luxembourg - Interdisciplinary Centre for Security, Reliability and Trust (SnT)

Alessandro Tugnetti

University of Luxembourg - Department of Finance

Date Written: August 12, 2023

Abstract

Non-fungible tokens (NFTs) took the digital art space by storm in 2021, generating massive amounts of volume and attracting a large number of users to a previously obscure part of blockchain technology. Still, very little is known about the determinants that contribute to NFT pricing and the market dynamics. This paper attempts to evaluate these factors analyzing 860,067 art NFTs that have been deployed on the Ethereum blockchain and have been involved in 317,950 sales. We introduce a first-of-its-kind ranking system for NFT artists, adding a novel dimension to our analysis. Our results suggest that market liquidity and intrinsic value strongly predict average price of NFTs. Contrarily, social media activity surprisingly shows a negative association with NFT prices. We also uncover the dominance of a small group of artists, demonstrating the pronounced 'superstar effect' and herding behavior within the NFT market. This market dynamic, however, shows signs of shifting towards independent decision-making during extreme market volatility.

Keywords: Non-fungible tokens (NFTs), Price Index, Herding

JEL Classification: C55, G11, Z11

Suggested Citation

Fridgen, Gilbert and Kraeussl, Roman and Papageorgiou, Orestis and Tugnetti, Alessandro, Pricing Dynamics and Herding Behavior of NFTs (August 12, 2023). Center for Financial Studies Working Paper No. 709, 2023, Available at SSRN: https://ssrn.com/abstract=4337173 or http://dx.doi.org/10.2139/ssrn.4337173

Gilbert Fridgen

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Roman Kraeussl

Bayes Business School (formerly Cass) ( email )

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Orestis Papageorgiou

University of Luxembourg - Interdisciplinary Centre for Security, Reliability and Trust (SnT) ( email )

JFK Building
29, Avenue J.F Kennedy
Luxembourg, L-1885
Luxembourg

Alessandro Tugnetti (Contact Author)

University of Luxembourg - Department of Finance ( email )

L-1511 Luxembourg
Luxembourg
(+352) 46 66 44 5331 (Phone)

HOME PAGE: http://wwwen.uni.lu/research/fdef/df/people/alessandro_tugnetti

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