Agency Problems and Sentiment : Evidence from An Auction Market

This study provides an empirical test of the Bolton, Freixas and Shapiro (2012) credit ratings model using data from art auctions. Our empirical work discovers that, despite the fact that art and bonds belong to totally different asset classes, financial intermediaries and investors behave in almost exactly the same way as the model would predict when intermediaries have agency problems and investors are subject to market sentiment. The analysis demonstrates that self-interest and sentiment are pervasive forces for driving wide-ranging investor behavior and asset pricing