William N. Goetzmann
Yale School of Management

Two measures of informational efficiency are applied to the market for paintings. The first is a measure of market efficiency as captured by serial dependency in returns. The serial correlation in an index of art returns suggests the possibility of persistent trends in the art market, however there is no empirical evidence that these trends can be easily exploited. The second is a measure of "price risk," or instantaneous uncertainty about the immediate resale value of a work of art. The magnitude of the price risk suggests that there is a major role for dealers in the art market. Using historical data, I find that the price risk has been declining since the beginning of the painting market, indicating increasing informational efficiency.