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A Model of Trading in the Art Market

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  • Stefano Lovo
  • Christophe Spaenjers

Abstract

We present an infinite-horizon model of endogenous trading in the art auction market. Agents make purchase and sale decisions based on the relative magnitude of their private use value in each period. Our model generates endogenous cross-sectional and time-series patterns in investment outcomes. Average returns and buy-in probabilities are negatively correlated with the time between purchase and resale (attempt). Idiosyncratic risk does not converge to zero as the holding period shrinks. Prices and auction volume increase during expansions. Our model finds empirical support in auction data and has implications for selection biases in observed prices and transaction-based price indexes.

Suggested Citation

  • Stefano Lovo & Christophe Spaenjers, 2018. "A Model of Trading in the Art Market," American Economic Review, American Economic Association, vol. 108(3), pages 744-774, March.
    • Handle: RePEc:aea:aecrev:v:108:y:2018:i:3:p:744-74
    Note: DOI: 10.1257/aer.20160522
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    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature

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