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Market efficiency in the art markets using a combination of long memory, fractal dimension, and approximate entropy measures

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  • Assaf, Ata
  • Kristoufek, Ladislav
  • Demir, Ender
  • Kumar Mitra, Subrata

Abstract

In this paper, we investigate the efficiency in the art markets, using a generalized spectral test (GST) in a rolling window approach to detect departure from the martingale difference hypothesis (MDH) and trace the periods of market efficiency over time. Then we complement our results using the approximate entropy, the rescaled range analysis, and fractal dimension. We combine the three measures in an Efficiency Index for each market. Applying these methods, we find that the Modern Art, Paintings, Post-war, Prints, the USA market, and the global market in Euro show the largest values for the Approximate Entropy. Using the rescaled range estimates, we find that all markets are characterized by persistent behavior and, then using the Efficiency Index, our results indicate overwhelming evidence of market inefficiency in almost all sectors. Finally, we support our findings with some explanation of the reasons behind market inefficiency, related to asymmetrical information, influential galleries power, and differentiated pieces and talents in the art markets.

Suggested Citation

  • Assaf, Ata & Kristoufek, Ladislav & Demir, Ender & Kumar Mitra, Subrata, 2021. "Market efficiency in the art markets using a combination of long memory, fractal dimension, and approximate entropy measures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
  • Handle: RePEc:eee:intfin:v:71:y:2021:i:c:s1042443121000317
    DOI: 10.1016/j.intfin.2021.101312
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    More about this item

    Keywords

    Art markets; Efficient index; Generalized spectral measure; Hurst exponent; Approximate entropy;
    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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