Is there a bubble in the art market?

Abstract

The record-breaking prices observed in the art market over the last three years raise the question of whether we are experiencing a speculative bubble. Given the difficulty to determine the fundamental value of artworks, we apply a right-tailed unit root test with forward recursive regressions (SADF test) to detect explosive behaviors directly in the time series of four different art market segments ("Impressionist and Modern", "Post-war and Contemporary", "American", and "Latin American") for the period from 1970 to 2013. We identify two historical speculative bubbles and find an explosive movement in today's "Post-war and Contemporary" and "American" fine art market segments.

The economics of aesthetics and record prices for art since 1701

“…Art price indexes typically show bubble-like behavior (e.g., Kräussl et al, 2014), such as short-term persistence and longer-term reversion. Moreover, returns and volume changes tend to be positively correlated.…”

Bubbles and Trading Frenzies: Evidence from the Art Market

“…Pownall et al (2013) employ a regime switching model to describe the dynamics of art prices using a threshold variable that drives prices into possibly locally explosive regimes. Kräussl et al (2014) 13 For the purposes of the current study, we create a separate subsample of transactions for each of these movements. If an artist is categorized under more than one movement, we assign all the sales of his or her work to the art movement the artist has most contributed to.…”

“Paintings Can Be Forged, But Not Feeling”: Vietnamese Art—Market, Fraud, and Value

“…For example, David et al (2013) suggest that, due to a lack of transparency in price formation, the art market is inefficient. In a later study, Kräussl et al (2016) find bubbles in four different fine art market segments from 1970 to 2014.…”