A recent study published in the Journal of Empirical Finance from the University of Luxembourg predicts that the seemingly ever growing art market bubble is about to burst.
Dr Roman Kraussl, Prof. Thorsten Lehnert, and Dr Nicolas Martelin from the Luxembourg School of Finance, applied a new statistical method of detecting bubbles to over one million auction records from 1970 to 2014, focusing their research on the impressionist and modern, post-war and contemporary, American, and old masters sectors of the market.
By identifying the market conditions that led up to the collapse of two previous art market bubbles in 1990 and 2008/2009 and comparing them with the symptoms seen today, researchers concluded that the current art market is showing signs of overheating.
According to the study, this would create the conditions for a “severe correction” or potential crash in the post-war and contemporary, American, and old masters categories, reports artnet.com.
The study defines bubbles as a dramatic escalation of trade volume at prices that exceed fundamental value, followed by sudden collapse. The authors point out that current market conditions bear several similarities to the art market bubble of 1990, leading them to believe that the current market is at, in their words, the “mania phase of its formation.”
Acknowledging the robust state of the global art market since the end of the financial market crisis of 2008/2009, emphasizing the strength of the contemporary art market which has doubled in value since the recovery following the crisis, the study warns that the current level of growth is unsustainable and that consequentially there will soon be a collapse.
Belgian financier and collector Alain Servais told artnet news via email that he believes the art market has already begun its downward spiral. Servais emphasized that highly publicized world auction records, such as the sale of Pablo Picasso’s Les Femmes d’Alger (Version O) (1955) at Christie’s for $179 million or Amedeo Modigliani’s Nu Couche (1917-18) for $170 million, hide the true state of the art market.
Meanwhile, not everyone is convinced. Todd Levin of the Levin Art Group dismissed the findings as stating the obvious. “If you don’t know we’ve been in a bubble in certain strata of the market for a prolonged period, then you’ve been missing something,” he told the Guardian.
