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Testing for bubbles in the art markets: An empirical investigation

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  • Assaf, Ata

Abstract

The market for artworks emerged about ten years ago and seems to have coincided with a rapid increase in the number of participants and record-breaking prices. This raises the question of whether this market is experiencing a rational bubble or not. In this paper, we apply a battery of tests to detect explosive behavior in the art markets from 1998 to 2015. According to the Markov Switching ADF test, two regimes exist for all the indices, but no bubble is found. However, applying the right- tailed ADF, we detect more than one bubble with most of the bubbles happening in the period 2002–2005. Then, accounting for the volatility shifts, we apply the bootstrap tests and find similar results. We argue that the market has been going through some adjustment after the 2008 financial crisis and becoming more sensitive to economic and geopolitical events, with the artworks demonstrating a level of maturity similar to other alternative investment classes. Our findings have important implications in recognizing the cause of bubbles and to take steps in reducing their impact on the economy.

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  • Assaf, Ata, 2018. "Testing for bubbles in the art markets: An empirical investigation," Economic Modelling, Elsevier, vol. 68(C), pages 340-355.
  • Handle: RePEc:eee:ecmode:v:68:y:2018:i:c:p:340-355
    DOI: 10.1016/j.econmod.2017.08.004
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    2. Francesco Angelini & Massimiliano Castellani, 2019. "Cultural and economic value: a critical review," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 43(2), pages 173-188, June.
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    More about this item

    Keywords

    Art Markets; Speculative Bubbles; Right Tailed ADF;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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