Time-Varying Risk Premiums in the Framework of Wine Investment

Abstract

This article examines the time-varying risk premium with reference to investments in fine wines. Unlike previous studies, our article focuses on this issue within the context of the financial crisis. To do this, we propose the use of a conditional capital asset pricing model and a multivariate generalized autoregressive conditional heteroskedasticity model on several appellation wines worldwide. We find that Bordeaux fine wines were more volatile during the financial crisis and are less volatile in non-crisis periods. In addition, while the volatility of Burgundy wines is second only to Bordeaux wines, non-French fine wines (Australia, Italy, and USA) exhibit inverse volatility trends to French fine wines. (JEL Classifications: C50, G01, G11, Q13)

Looking Beyond Wine Risk-Adjusted Performance

“…Over the last years, new econometric tools have been introduced to improve the analysis of wine assets. DCC-GARCH and ADCC-GARCH were applied to test the time-varying volatilities of wine returns and the contagion effects between fine wine and financial indices (Bouri and Roubaud, 2016; Le Fur et al, 2016a; Le Fur et al, 2016b). Furthermore, copula functions were used to explore the dependence between Bordeaux en primeur prices and Parker ratings (Cyr, Kwong, and Sun, 2017).…”

“… 6 See Bouri and Roubaud (2016) and Le Fur et al (2016b) for two recent applications in wine economics.…”

The Role of Individual Risk Attitudes on Old Wine Valuations

“…Several studies have used laboratory methods to account for each preference in the wine and spirits sector 3 . With respect to wine-related uncertainty, recent articles focus on the risks faced by fine wine investors (Le Fur, Ameur, and Faye, 2016; Bouri and Roubaud, 2016) or on the risk aversion of winegrowers to pesticides (Aka, Ugaglia, and Lescot, 2018), but the literature remains silent on the link between individual risk attitudes and old wine valuation. Exceptionally, Georgantzís and Navarro-Martínez (2010) report a negative effect of risk aversion on a consumer's valuation of a wine whose quality is unknown at the moment of valuation.…”

On Pricing Unconventional Prepaid Forward Contracts: Evidence fromen primeurFine Wine

“…Fine wines have been widely regarded as an alternative asset class. Thus, an abundance of research in finance and wine economics examines their price behavior (Jones and Storchmann, 2001; Dimson, Rousseau, and Spaenjers, 2015; Breeden and Liang, 2017; Cardebat et al, 2017; Faye and Le Fur, 2019), investment attributes (Sanning, Shaffer, and Sharratt, 2008; Masset and Henderson, 2010; Bouri, 2015; Masset et al, 2017; Le Fur, Ameur, and Faye, 2016; Bouri et al, 2018), capabilities to hedge against inflation (Erdős and Ormos, 2013), interdependencies with other markets (Faye, Le Fur, and Prat, 2015; Bouri and Roubaud, 2016), and trading environment (Czupryna and Oleksy, 2018).…”