Unique Durable Assets

Stefano Lovo and Christophe Spaenjers

No 1037, HEC Research Papers Series from HEC Paris

Abstract: This paper presents a model of trading in unique durable assets that provide idiosyncratic payoffs, such as art, luxury real estate, and firm subsidiaries. Agents make purchase and sale decisions in an auction market based on their private use value of the asset and on the expected resale revenues. Individuals with a relatively strong taste for the asset are willing to pay a high price and sell only when hit by a liquidity shock. By contrast, those deriving little pleasure from ownership aim to resell quickly at a profit if winning an auction despite their low bids. As a result, holding periods and financial returns are negatively correlated. Furthermore, speculative activity increases in economic expansions, leading to a positive correlation between prices and voluntary sales volume. The empirical predictions of our model find support in historical art transaction data.

Keywords: auctions; durable goods; endogenous trading; private value; speculation (search for similar items in EconPapers)
JEL-codes: D44 D84 G11 G12 Z11 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-04-08
References: Add references at CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1037

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