Reference : Wine as an Investment
Dissertations and theses : Doctoral thesis
Business & economic sciences : Finance
Wine as an Investment
Sun, Huizhu mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
University of Luxembourg, ​Luxembourg city, ​​Luxembourg
Docteur en Sciences Financières
Kräussl, Roman mailto
[en] French Wine ; Auction price ; Robert Parker ; Hedonic regression ; Event study ; Rational bubbles ; Generalized sup right-tailed ADF ; forward recursive ; Portfolio Optimization
[en] During the last two decades, the wine auction market experienced non-monotonic dynamics and provided abnormal returns. When fine wine prices started to rise in the mid-1980s, wine investing transcended from a pastime into a serious investment transforming wine into a widespread investment activity. As an alternative asset, fine wine attracts increased attention among individual and institutional investors in recent years, particularly during the financial crisis due to its diversification potential. Economists also began evaluating wine as a new alternative asset class. In this thesis, we review the wine auction markets, study the price dynamics, and answer some fundamental questions. To build solid conclusions, we developed the largest French wine auction database encompassing the last 20 years. We summary our main contributions as follows. First, we review and explain the growth in recent global wine auction markets. Second, we construct price indices with hedonic regression models to observe market movements. Third, we investigate wine investment’s diversification potential. Wine in an optimal portfolio can improve the risk-return characteristics; however, the augmentation depends significantly on the market segmentation to which the investor applies it. Fourth, we analyze the wine price bubbles and collapses detection using a newly developed econometric approach. We elucidate strong evidence of two bubbles in the Bordeaux and Burgundy wine auction markets, whereas Rhône wine price behaved in a similar, but less significant, trend as Bordeaux and Burgundy wine markets. Finally, we examine the price determinants with a particular focus on the expert effect on this experienced good. We illuminate expert influence remains economically and statistically significant throughout the sample period. Using event study methodology, we disentangle the expert effect from other price variations and assert the market significantly reflects expert’s big re-ratings in the short term, yet the effect diminishes over time. However, this re-rating effect holds insignificant for modest changes.
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