The Rate of Return on Investment in Wine

Abstract

Is wine an investment alternative to stocks and bonds? First, we review prior studies regarding the pecuniary rate of return to wine and other alternatives to financial assets. Next, we calculate the rate of return to holding red Bordeaux wine from 1986 to 1996 using a repeat-sale regression. Finally, we contrast the financial performance of wine, both on an aggregate basis and for various portfolios, to that of other asset classes. We conclude that wine does not yield greater returns than financial assets, especially when the volatility of returns and transaction costs are taken into account.Investments in art and other collectibles are generally deemed profitable, but empirical examinations of the relative attractiveness of noncapital good tangible assets relative to financial instruments have shown that art and other collectibles are not sound investments from a financial point of view. There is a large body of literature that calculates the rate of return on alternative asset classes and concludes with few exceptions that nonfinancial assets are not good financial investments. However, in the case of wine, the evidence is mixed: Collectors often maintain that the pecuniary rate of return on investments in wine is comparable to or exceeds investments in stocks and bonds, and economists have not reached a consensus vis-à-vis the relative attractiveness of wine.In this article we consider (1) how investment-grade wine compares to other alternative asset classes and (2) whether wine might be a viable investment alternative to stocks or bonds. First, we consider the results drawn from empirical investigations

When Will Bubbles Occur in the Fine Wine Market?

“…To begin with, some costs are related to the trading of this asset, such as storage costs and insurance costs. Burton and Jacobsen (2001) indicate that additional storage costs and fees can reduce returns generated by this investment.…”

“…Literature reviewPrevious investigation has appeared in this filed since fine wines become an alternative financial asset(Cardebat and Jiao, 2018). A first strand of the literature has considered the returns of storing wine Burton and Jacobsen (2001). find that Bordeaux wines do not yield higher returns than financial assets, such as stock and bonds.…”

Wine as an Alternative Asset Class

“…12 For instance, DeVittorio and Ginsburgh (1996) make use of the hedonic approach and find that a vintage like 1954, which is considered a "worse than average" vintage, outperforms every other vintage (including the great 1961). They also have to exclude vintage 1982 from the analysis because of multicollinearity problems.13 In the wine economics literature, it has recently been used byBurton and Jacobsen (2001).terms of use, available at https:/www.cambridge.org/core/terms. https://doi.org/10.1017/S1931436100001395 Downloaded from https:/www.cambridge.org/core.…”

“…Over the period January 1 2001 to September 21 2001, the Dow Jones and the Nasdaq 100 respectively lost 23% and 52%. From March 2000 to the end of 2000, the Nasdaq had already lost more than 50%; though, over the same period, the Dow Jones was down by less than 3%.18 See alsoBurton and Jacobsen (2001) for an exhaustive discussion of the costs/benefits associated to the holding and trading of wine.terms of use, available at https:/www.cambridge.org/core/terms. https://doi.org/10.1017/S1931436100001395 Downloaded from https:/www.cambridge.org/core.…”

Barriers to growth in Ontario's VQA wine industry

“…The (Burton & Jacobsen, 2001), the effects o f who operates a wineryprofessional manager or owner (Frick, 2004), the motivation (utility and/or profit) of winery owners (Morton and Podolny, 2002), the relationship o f quality and grape growing contracts (Goodhue et al, 2003), the relationship between social order, status and quality amongst wineries (Benjamin & Podolny, 1999) as well as several studies of wine clusters that will be described in more detail later. Some o f these papers do have relevance to the current study.…”