NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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When a Master Dies: Speculation and Asset Float

Julien Pénasse, Luc Renneboog, José A. Scheinkman

NBER Working Paper No. 26831
Issued in March 2020
NBER Program(s):Asset Pricing

The death of an artist constitutes a negative supply shock to his future production; in finance terms, this supply shock reduces the artist's float. Intuition may thus suggest that this supply shock reduces the future auction volume of the artist. However, if collectors have fluctuating heterogeneous beliefs, since they cannot sell short, prices overweigh optimists' beliefs and have a speculative component. If collectors have limited capacity to bear risk, an increase in float may decrease subsequent turnover and prices (Hong et al. 2006). Symmetrically, a negative supply shock leads to an augmentation of prices and turnover. We find strong support for this prediction in the data on art auctions that we examine.

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Document Object Identifier (DOI): 10.3386/w26831

 
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