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Raise Your Glass: Wine Investment And The Financial Crisis

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  • Masset, Philippe
  • Weisskopf, Jean-Philippe

Abstract

This paper uses auction hammer prices over the period 1996-2009, with a special emphasis on periods of economic downturns, to examine risk, return and diversification benefits of fine wine. Our research shows evidence that the wine market is heterogeneous with wine regions and price categories evolving differently in terms of volume and turnover. We construct wine indices for various wine regions and prices using repeat-sales regressions and find out that fine wine yields higher returns and has a lower volatility compared to stocks especially in times of economic crises. Forming portfolios for typical investors and taking risk aversion, different financial assets and various wine indices into consideration we confirm that the addition of wine to a portfolio as a separate asset-class is beneficial for private investors. Not only are returns favourably impacted and risk being minimised but skewness and kurtosis are also positively affected. Particularly, during the recent financial crisis these effects are most pronounced and improve portfolio diversification when it is most needed. Most importantly, balancing a portfolio with fine wine has resulted in added return while reducing volatility with the most prestigious and expensive vintages and estates outperforming the General Wine Index (GWI) during the entire research period. Results from the CAPM show that alpha is significantly positive over the period 1996- 2009 while showing a low beta coefficient. The use of a conditional CAPM model allows us to clarify the time-variance of alphas and betas depending on the economic environment that is not generally captured by the traditional CAPM. The time-varying dynamics of alphas and betas are in particular best explained by the spread between BAA- and AAA-rated bonds and the USD/EUR foreign exchange rate. Our findings confirm that wine returns are primarily related to economic conditions and not to the market risk.

Suggested Citation

  • Masset, Philippe & Weisskopf, Jean-Philippe, 2010. "Raise Your Glass: Wine Investment And The Financial Crisis," Working Papers 90484, American Association of Wine Economists.
  • Handle: RePEc:ags:aawewp:90484
    DOI: 10.22004/ag.econ.90484
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    Cited by:

    1. Erdős, Péter & Ormos, Mihály, 2012. "Pricing of collectibles: Baedeker guidebooks," Economic Modelling, Elsevier, vol. 29(5), pages 1968-1978.
    2. Limor Dina Gonen & Tchai Tavor & Uriel Spiegel, 2021. "The Positive Effect of Aging in the Case of Wine," Mathematics, MDPI, vol. 9(9), pages 1-16, April.
    3. Dimson, Elroy & Rousseau, Peter L. & Spaenjers, Christophe, 2015. "The price of wine," Journal of Financial Economics, Elsevier, vol. 118(2), pages 431-449.
    4. Bouri, Elie & Gupta, Rangan & Wong, Wing-Keung & Zhu, Zhenzhen, 2018. "Is wine a good choice for investment?," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 171-183.
    5. Ping Qing & Aiqin Xi & Wuyang Hu, 2015. "Self-Consumption, Gifting, and Chinese Wine Consumers," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 63(4), pages 601-620, December.
    6. Lucia Baldi & Massimo Peri & Daniela Vandone, 2013. "Investing in the wine market: a country-level threshold cointegration approach," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 493-503, March.
    7. Elie Bouri & Tsangyao Chang & Rangan Gupta, 2016. "Testing the Efficiency of the Wine Market using Unit Root Tests with Sharp and Smooth Breaks," Working Papers 201664, University of Pretoria, Department of Economics.
    8. Kourtis, Apostolos & Markellos, Raphael N. & Psychoyios, Dimitris, 2012. "Wine price risk management: International diversification and derivative instruments," International Review of Financial Analysis, Elsevier, vol. 22(C), pages 30-37.
    9. Conrad, Jon M. & Gomez, Miguel I. & Lamadrid, Alberto J., 2010. "Wine in Your Knapsack?," Working Papers 126966, Cornell University, Department of Applied Economics and Management.
    10. Dobrynskaya, Victoria & Kishilova, Julia, 2022. "Lego: The Toy Of Smart Investors," Research in International Business and Finance, Elsevier, vol. 59(C).
    11. Cardebat, Jean-Marie & Jiao, Linda, 2018. "The long-term financial drivers of fine wine prices: The role of emerging markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 347-361.
    12. James J. Fogarty & Callum Jones, 2011. "Return To Wine: A Comparison Of The Hedonic, Repeat Sales And Hybrid Approaches," Australian Economic Papers, Wiley Blackwell, vol. 50(4), pages 147-156, December.
    13. Masset, Philippe & Weisskopf, Jean-Philippe, 2018. "Wine indices in practice: Nicely labeled but slightly corked," Economic Modelling, Elsevier, vol. 68(C), pages 555-569.
    14. Mert Hakan Hekimoğlu & Burak Kazaz & Scott Webster, 2017. "Wine Analytics: Fine Wine Pricing and Selection Under Weather and Market Uncertainty," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 202-215, May.
    15. Baldi, Lucia & Peri, Massimo & Vandone, Daniela, 2016. "Stock markets’ bubbles burst and volatility spillovers in agricultural commodity markets," Research in International Business and Finance, Elsevier, vol. 38(C), pages 277-285.
    16. Eric Le Fur & Jean-François Outreville, 2019. "Fine wine returns: a review of the literature," Journal of Asset Management, Palgrave Macmillan, vol. 20(3), pages 196-214, May.
    17. Lucey, Brian M. & Devine, Liam, 2015. "Was wine a premier cru investment?," Research in International Business and Finance, Elsevier, vol. 34(C), pages 33-51.
    18. Masset, Philippe & Weisskopf, Jean-Philippe & Faye, Benoît & Le Fur, Eric, 2016. "Red obsession: The ascent of fine wine in China," Emerging Markets Review, Elsevier, vol. 29(C), pages 200-225.
    19. Bargain, Olivier & Cardebat, Jean-Marie & Vignolles, Alexandra, 2016. "Crowdfunding in Wine," Working Papers 234638, American Association of Wine Economists.
    20. Qing, Ping & Hu, Wuyang, 2016. "Chinese Consumer Preference for Red Wine Attributes," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235477, Agricultural and Applied Economics Association.

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    Keywords

    Financial Economics; Risk and Uncertainty;

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