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To Save or Savor: A Review of Approaches for Measuring Wine as an Investment*

Published online by Cambridge University Press:  29 October 2014

James J. Fogarty  and
Rohan Sadler
James J. Fogarty*
Affiliation:
University of Western Australia, School of Agricultural and Resource Economics, Perth, WA, Australia, 6009; Tel.: +61 8 6488 3419
Rohan Sadler
Affiliation:
Astron Environmental Services Pty., 129 Royal Street, East Perth, WA, Australia, 6004; Tel.: +61 8 9421 9684; e-mail: [email protected].
*
(corresponding author). e-mail: [email protected]
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Abstract

In the literature, there is no standard approach for estimating the return to wine or testing for a portfolio risk diversification benefit from holding wine. Using auction data for Australian wine, we show that the estimation method has a material impact on the estimated wine return distribution and that the type of diversification benefit test used influences whether or not wine is found to provide a portfolio risk diversification benefit. Our results indicated that a simple modification to the hedonic model, which we call a pooled model, is an appropriate method for estimating the return to infrequently traded heterogeneous assets such as wine. Across the various approaches to testing for a risk diversification benefit, we find direct estimation of the efficient frontier with bootstrapped confidence intervals to be the most transparent and comprehensive method of illustrating wine's potential for lowering portfolio risk. (JEL Classifications: G11, C61, C13)

Keywords

wine investmentportfolio optimisation
Type
Articles
Information
Journal of Wine Economics , Volume 9 , Issue 3 , December 2014 , pp. 225 - 248
Copyright
Copyright © American Association of Wine Economists 2014 

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Footnotes

*

The authors thank an anonymous referee for a range of helpful suggestions that improved the paper.

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