A Model of Trading in the Art Market | Zendy

Stefano Lovo | Zendy; Christophe Spaenjers | Zendy

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A Model of Trading in the Art Market

Author(s) -

Stefano Lovo,

Christophe Spaenjers

Publication year - 2018

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20160522

Subject(s) - economics , investment (military) , value (mathematics) , database transaction , microeconomics , econometrics , financial economics , mathematics , politics , political science , computer science , law , programming language , statistics

We present an infinite-horizon model of endogenous trading in the art auction market. Agents make purchase and sale decisions based on the relative magnitude of their private use value in each period. Our model generates endogenous cross-sectional and time-series patterns in investment outcomes. Average returns and buy-in probabilities are negatively correlated with the time between purchase and resale (attempt). Idiosyncratic risk does not converge to zero as the holding period shrinks. Prices and auction volume increase during expansions. Our model finds empirical support in auction data and has implications for selection biases in observed prices and transaction-based price indexes. (JEL C43, D44, E32, Z11)

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