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Testing the Efficiency of the Art Market using Quantile-Based Unit Root Tests with Sharp and Smooth Breaks

Goodness Aye (), Tsangyao Chang (), Wen-Yi Chen (), Rangan Gupta () and Mark Wohar ()
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Goodness Aye: Department of Economics, University of Pretoria
Wen-Yi Chen: Department of Senior Citizen Service Management, National Taichung University of Science and Technology, Taiwan

No 201625, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the efficiency market hypothesis for the art market using a novel nonlinear quantile-based unit root test while accounting for sharp shifts and smooth breaks in the data. We use quarterly data which covers 1998:1 and 2015:1. Our analysis is based on 15 art price indices: Contemporary, Drawings, France, Global index (Euro), Global index (USD), Modern art, Nineteenth century, Old Masters, Paintings, Photographies, Postwar, Prints, Sculptures, UK and US. We find evidence of structural shifts and nonlinearity in the art indices. We cannot reject the null of unit root and/or stationarity in the art series based on the conventional linear unit root tests and quantile-based test that did not account for structural breaks. However, when we use the same methods but accounting for sharp shifts and smooth breaks, we are able to reject the unit root null for each of the art indices. Further we find evidence of asymmetric behaviour in some of the indices: two global indices, Paintings, Prints, Sculptures, Modern art and Postwar, where unit root exist at some quantiles but not at others. Overall, our result suggest that the art market is inefficient. We provide some practical and policy implications of our findings.

Keywords: Art market; efficiency; sharp and smooth breaks; conventional unit root tests; quantile unit root tests (search for similar items in EconPapers)
JEL-codes: C22 G10 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cul
Date: 2016-03
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