Economic Analysis of the Probability of the Art Market Bubble Existence

Student: Danilova Daria

Supervisor: Emiliano Catonini

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Final Grade: 7

Year of Graduation: 2017

This paper analyzes the rapid increase of prices in the Contemporary art market after 2000s to define whether this growth can be considered as an asset price bubble, overcoming the problem of the unobservable fundamental value of art works. The ADF tests indicate a strong evidence of periodically collapsing bubbles over the studied period and LPPL model predicts the next significant peak in 2019. The further empirical evidence on the unsold lots, art-backed loans and extrapolation indicate that the statistically identified explosive behavior can be considered as an asset price bubble because during these periods prices were based on the speculation purposes and expectations of further price growth rather than on the fundamental value identified by the aesthetic worth.

Full text (added June 16, 2017)

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