Wine: To drink or invest in? A study of wine as an investment asset in French portfolios

This paper aims to assess the role of wine investments in the diversification of French portfolios. Our 2007\textendash2014 dataset is composed of not only Liv-ex indexes but also WineDex ones. These latter are proposed by iDealwine, an online platform for wine investment in France. We also include stocks, bonds and a risk-free asset to constitute different French portfolios based on the risk-aversion degree of investors (Canner et al., 1997). Moreover, we compare wine to another important alternative asset for French investors: gold. Following the mean-variance portfolio optimization approach (Markowitz, 1952), we find that portfolios with wine are more efficient than portfolios without it. However, following the mean-modified value-at-risk portfolio optimization (Favre and Galeano, 2002), the results with Liv-ex indexes are not maintained anymore. On the other hand, we use the Sharpe (1964) and modified Sharpe (Gregoriou and Gueyie, 2003) ratios to calculate the portfolio performance. We find that in most cases, the higher the proportion of wine, the higher the portfolio performance is. In all cases, our results suggest that iDealwine indexes, particularly WineDex Bordeaux, are more profitable than Liv-ex ones. On the other hand, following the optimal weights calculated by the Kroner and Ng (1998) method, we find that the less risk-averse the investors, the more they should include wine in their portfolios. Otherwise, we find that gold does not allow improving efficient frontiers. However, it allows improving the performance of French portfolios. A robustness check on the 2001\textendash2006 period shows that wine and gold remain profitable for portfolio diversification even before the recent crisis period but with lower impacts on the performance improvement.