When a Master Dies : Speculation and Asset Float

The death of an artist constitutes a negative supply shock to his future produc- tion; 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 sub- sequent 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