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Bubbles and Trading Frenzies : Evidence from the Art Market

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  • Penasse, J.N.G.

    (Tilburg University, TILEC)

  • Renneboog, L.D.R.

    (Tilburg University, TILEC)

Abstract

The art market is subject to frequent booms and busts in both prices and volume, which are difficult to reconcile with models where agents are rational and hold homogenous beliefs. This paper shows that (i) volume is mainly driven by speculative transactions; (ii) positive price-volume correlation is pervasive across art movements, and is larger for the most volatile segments of the art market; (iii) volume predicts negative long-term returns, a relation that is statistically and economically large. Overall, our evidence supports the bubble model of Scheinkman and Xiong (2003), which predicts that speculative trading can generate significant price bubbles, even if trading costs are huge and leverage is impossible.

Suggested Citation

  • Penasse, J.N.G. & Renneboog, L.D.R., 2014. "Bubbles and Trading Frenzies : Evidence from the Art Market," Discussion Paper 2014-068, Tilburg University, Tilburg Law and Economic Center.
  • Handle: RePEc:tiu:tiutil:386dd5e7-e672-4d9d-829c-6a9102704006
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    References listed on IDEAS

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    Cited by:

    1. Spaenjers, Christophe & Goetzmann, William N. & Mamonova, Elena, 2015. "The economics of aesthetics and record prices for art since 1701," Explorations in Economic History, Elsevier, vol. 57(C), pages 79-94.
    2. Eric Zwick & Charles Nathanson & Anthony DeFusco, 2017. "Speculative Dynamics of Prices and Volume," 2017 Meeting Papers 239, Society for Economic Dynamics.
    3. Carlos J. Perez & Manuel Santos, 2017. "On the Dynamics of Speculation in a Model of Bubbles and Manias," Working Papers 2017-02, University of Miami, Department of Economics.
    4. Kräussl, Roman & Lehnert, Thorsten & Martelin, Nicolas, 2016. "Is there a bubble in the art market?," Journal of Empirical Finance, Elsevier, vol. 35(C), pages 99-109.

    More about this item

    Keywords

    art market; bubbles; return predictability; auction; trading volume;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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