Random walk theory and the weak-form efficiency of the US art auction prices

Erdős, Péter L.; Ormos, Mihály

doi:10.1016/j.jbankfin.2009.11.001

Cited by 46 publications

(20 citation statements)

References 43 publications

(96 reference statements)

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“…Early contributions on testing the deviation from random walk pricing are provided by Fama (1965), Barnea (1974), and Solnik (1974). More recently, these tests have been used as measures of informational efficiency in different research fields: for example, Boehmer and Kelley (2009) (the role of institutional investors), Griffin et al (2010) (international comparison of market efficiency), Choi et al (2009) (in the bond market), Erdos and Ormos (2010) (in the art market), Bennett and Wei (2006) and O'Hara and Ye (2011) (the effect of market fragmentation), Boehmer et al (2015) (in the derivatives market), Saffi and Sigurdsson (2011) (the effect of short selling constraints), Conrad et al (2015) (the effect of high frequency trading), Kadapakkam et al (2015) (informational efficiency of exchange traded funds). Surveys of the empirical literature on informational efficiency are contained in Charles and Darné (2009) and Lim and Brooks (2011); a methodological discussion of the informational efficiency measures is provided by Campbell et al (1997).…”

Section: (Ii) Measuring Informational Efficiencymentioning

confidence: 99%

Managerial Discretion in Accruals and Informational Efficiency

Perotti

Windisch²

2017

Business Fin & Account

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In this paper, we examine the relation between managerial discretion in accruals and informational efficiency. We measure managerial discretion in accruals by the absolute value of abnormal accruals. Assuming that efficient prices follow a random walk, we measure informational efficiency by using stock return variance ratios. We find that the absolute value of abnormal accruals is negatively associated with the price deviation from a random walk pattern, estimated in the 12‐month period subsequent to the accrual reporting; hence, future informational efficiency increases with the extent to which managers exercise discretion over accruals. The results are consistent with the view that discretionary accruals, on average, convey useful information to investors and facilitate the price convergence to its fundamental value. Our findings are robust to a battery of tests, including tests to validate both our measures of informational efficiency and our measure of managerial discretion in accruals.

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Section: (Ii) Measuring Informational Efficiencymentioning

confidence: 99%

Managerial Discretion in Accruals and Informational Efficiency

Perotti

Windisch²

2017

Business Fin & Account

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“…Erdös and Ormos () employ variance ratio tests to detect the size of the random walk component of the US art auction prices (combination of the Mei Moses Fine Art Index and the US subindex of the Artprice Global Index family) using annual data from 1875 to 2008. They find that the past 134 years of US art prices exhibit large transitory component (72 per cent) and consequently, the random walk hypothesis does not hold.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The art market price indices are calculated from a repeat‐sales model drawn from a database of over 27 million auction records from over 3,600 auction houses around the world. A repeat sales takes place if two works of art are sold sequentially which are by the same artist and their size, technique, materials, medium and the date of creation are matched (Erdös and Ormos, ). We prefer to use this data base given the availability of comprehensive dataset and at quarterly frequency.…”

Section: Data and Empirical Modelsmentioning

confidence: 99%

“…While most studies have used the standard linear models or unit root tests methods (Louargand and McDaniel, ; Chanel, ; Worthington and Higgs, ; Hodgson and Vorkink ) and variance ratio tests (Erdös and Ormos; ; David et al . ; Munteanu and Pece, ; Aye et al ., ), few have used nonlinear linear tests (Çevik et al ., ; to examine the art market efficiency.…”

Section: Introductionmentioning

confidence: 99%

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

Aye

Chang

Chen

et al. 2017

The Manchester School

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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.

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“…Erdó´s and M. Ormos afterwards, was widely used to study wine and art prices (Burton & Jacobsen, 2001;Erdó´s & Ormos, 2010). The RSR approach has an advantage over the hedonic model in that it does not depend on the arbitrary definition of the hedonic pricing function but tracks the price evolution of items that have the same properties in all aspects.…”

mentioning

confidence: 99%

Components of investment grade wine prices

Erdős

Ormos

2013

Journal of Wine Research

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We investigate the fine-wine market from a weak-form efficiency viewpoint using the London International Vintners Exchange index family for the period from January 1993 to February 2010. The autoregressive moving average spectral estimates of variance ratios (VRs) show that the random walk (RW) hypothesis can be rejected regardless of USD or GBP currency denomination and regardless of inflation. The wine returns exhibit large positive autocorrelation, resulting in VRs that are above unity, which indicates that apart from the RW, a stationary component characterizes wine prices. The large stationary component can be associated with the illiquidity of wines and the inefficiency of young wines. The RW component of wine prices is likely to be driven by the market factor. Owing to currency risk, a US wine investor faces a higher risk than his/her UK counterpart, although wines hedge against inflation in both currencies.

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Random walk theory and the weak-form efficiency of the US art auction prices

Cited by 46 publications

References 43 publications

Managerial Discretion in Accruals and Informational Efficiency

Managerial Discretion in Accruals and Informational Efficiency

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

Components of investment grade wine prices

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