Is the Early Bird Too Early? Looking for Evidence of the Disposition Effect in the Emerging Markets of Modern and Contemporary Chinese Art

In recent years, the world has been witnessing the expanding financialization of art. As the art market is characterized by a considerable lack of systematic economic analysis and evaluation, the importance of aspects outside the classical economic factors come to forth. The application of behavioral economics to the art market has the potential to shed light on a market known for being opaque. The present research constitutes a step forward in this under-developed area of study as it focuses on the presence (or lack thereof) of the disposition effect in the emerging art market of modern and contemporary Chinese art. Constructing and analyzing a dataset of past art auctions spanning three decades, we find no evidence for the disposition effect. Remarkably, we find instead a reverse inclination among investors in contemporary Chinese art market, namely to hold winner artworks for longer periods of time than loser artworks.