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Speculative Trading and Bubbles: Evidence from the Art Market

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  • Julien Pénasse

    (University of Luxembourg, L-1359 Luxembourg, Luxembourg)

  • Luc Renneboog

    (Tilburg University, 5000 LE Tilburg, Netherlands)

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.

Suggested Citation

  • Julien Pénasse & Luc Renneboog, 2022. "Speculative Trading and Bubbles: Evidence from the Art Market," Management Science, INFORMS, vol. 68(7), pages 4939-4963, July.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:7:p:4939-4963
    DOI: 10.1287/mnsc.2021.4088
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