Speculative Trading and Bubbles: Evidence from the Art Market

Julien Penasse and Luc Renneboog

Management Science, 2022, vol. 68, issue 7, 4939-4963

Abstract: We argue that extrapolative expectations drive boom–bust cycles in the postwar art market. Price run-ups coincide with increases in demand fundamentals but are followed by predictable busts. Predictable changes account for about half of the variance of five-year price changes. High prices coincide with many attributes of speculative bubbles: trading volume, the share of short-term trades, the share of postwar art, and volatility are all higher during booms. In addition, short-term transactions underperform long-term transactions. Survey evidence further confirms the link between beliefs, prices, and volume dynamics as in models in which extrapolative beliefs fuel speculative bubbles.

Keywords: extrapolative beliefs; speculative bubbles; trading volume; art auction (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:7:p:4939-4963

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