Hostname: page-component-cd9895bd7-lnqnp Total loading time: 0 Render date: 2024-12-24T03:38:22.787Z Has data issue: false hasContentIssue false
  • English
  • Français

Time-Varying Risk Premiums in the Framework of Wine Investment*

Published online by Cambridge University Press:  04 November 2016

Eric Le Fur ,
Hachmi Ben Ameur  and
Benoit Faye
Eric Le Fur*
Affiliation:
Institut des Hautes Etudes Economiques et Commerciales (INSEEC) Business School, H19, Quai de Bacalan, CS 600083, 33070 Bordeaux, Cedex, France; University of Bordeaux; Bordeaux Wine Economists
Hachmi Ben Ameur
Affiliation:
INSEEC Business School, 27 avenue Vellefaux, 75010 Paris Cedex, France; e-mail: [email protected].
Benoit Faye
Affiliation:
INSEEC Business School, H19, Quai de Bacalan, CS 600083, 33070 Bordeaux, Cedex, France; University of Bordeaux; Bordeaux Wine Economist; e-mail: [email protected].
*
e-mail: [email protected] (corresponding author).
Get access Rights & Permissions [Opens in a new window]

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)

Keywords

betasDCC-GARCHfine winesLiv-exrisk premium
Type
Articles
Information
Journal of Wine Economics , Volume 11 , Issue 3 , December 2016 , pp. 355 - 378
Copyright
Copyright © American Association of Wine Economists 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We thank an anonymous referee for his/her comments that helped to improve the paper. All remaining errors are ours. We also thank London International Vintners Exchange (Liv-ex) for providing us with the detailed index data.

References

Baldi, L., Vandone, D., and Peri, M. (2010). Is wine a financial parachute? Proceedings in Food System Dynamics, 2010, 472–487.Google Scholar
Bauwens, L., Laurent, S., and Rombouts, J.V.K. (2006). Multivariate GARCH models: A survey. Journal of Applied Econometrics, 21(1), 79–109.Google Scholar
Bjornson, B., and Carter, C.A. (1997). New evidence on agricultural commodity returns performance under time-varying risk. American Journal of Agricultural Economics, 79(3), 918–930.Google Scholar
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307–327.Google Scholar
Bollerslev, T. (1990). Modelling the coherence in short-run nominal exchange rates: A multivariate generalized ARCH model. Review of Economics and Statistics, 72(3), 498–505.Google Scholar
Bollerslev, T., Engle, R.F., and Wooldridge, J.M. (1988). A capital asset pricing model with time-varying covariances. Journal of Political Economy, 96(1), 116–131.CrossRefGoogle Scholar
Bouri, E.I. (2013). Do fine wines blend with crude oil? Seizing the transmission of mean and volatility between two commodity prices. Journal of Wine Economics, 8(1), 49–68.Google Scholar
Burton, B.J., and Jacobsen, J.P. (2001). The rate of return on investment in wine. Economic Inquiry, 39(3), 337–350.Google Scholar
Cardebat, J.-M, and Figuet, J.-M. (2010). Is Bordeaux wine an alternative financial asset? Paper presented at Fifth International Academy of Wine Business Research Conference, February 8–10, Auckland, New Zealand.Google Scholar
De Santis, G., and Gérard, B. (1998). How big is the premium for currency risk? Journal of Financial Economics, 49(3), 375–412.Google Scholar
Devine, L., and Lucey, B. (2011). Is wine a premier cru investment? Midwest Finance Association 2012 Annual Meetings Paper.Google Scholar
Dimson, E., Rousseau, P.L., and Spaenjers, C. (2015). The price of wine. Journal of Financial Economics, 118(2), 431–449.Google Scholar
Engle, R.F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica, 50(4), 987–1007.CrossRefGoogle Scholar
Engle, R.F, Lilien, D.M, and Robins, R.P. (1987). Estimating time varying risk premia in the term structure: The ARCH-M model. Econometrica, 55(2), 391–407.Google Scholar
Engle, R.F., and Sheppard, K. (2001). Theoretical and empirical properties of dynamic conditional correlation multivariate GARCH. National Bureau of Economic Research (NBER) Working Paper No. 8554. Cambridge, MA: NBER.Google Scholar
Engle, R.F., Shephard, N., and Shepard, K. (2009). Fitting vast dimensional time-varying covariance models. Working Paper FIN-08-009. New York: New York University Stern School of Business.Google Scholar
Fabozzi, F.J., and Francis, J.C. (1978). Beta as a random coefficient. Journal of Financial and Quantitative Analysis, 13(1), 101–116.Google Scholar
Fama, E.F., and French, K.R. (2004). The capital asset pricing model: Theory and evidence. Journal of Economic Perspectives, 18(3), 25–46.Google Scholar
Faye, B., Le Fur, E., and Prat, S. (2015). Dynamics of fine wine and asset prices: Evidence from short- and long-run co-movements. Applied Economics, 47(29), 3059–3077.Google Scholar
Fogarty, J.J. (2006a). The return to Australian fine wine. European Review of Agricultural Economics, 33(4), 542–561.Google Scholar
Fogarty, J.J. (2006b). Wine investment, pricing and substitutes. Master's thesis, University of Western Australia, Perth, Australia.Google Scholar
Fogarty, J.J. (2010). Wine investment and portfolio diversification gains. Journal of Wine Economics, 5(1), 119–131.Google Scholar
Fogarty, J.J., and Jones, C. (2011). Return to wine: A comparison of the hedonic, repeat sales, and hybrid approaches. Australian Economic Papers, 50(4), 147–156.Google Scholar
Fogarty, J.J., and Sadler, R. (2014). To save or savor: A review of approaches for measuring wine as an investment. Journal of Wine Economics, 9(3), 225–248.CrossRefGoogle Scholar
Frank, J., and Garcia, P. (2009). Time-varying risk premium: Further evidence in agricultural futures markets. Applied Economics, 41(6), 715–725.CrossRefGoogle Scholar
Glosten, L.R., Jagannathan, R., and Runkle, D.E. (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. Journal of Finance, 48(5), 1779–1801.Google Scholar
Hadj Ali, H., and Nauges, C. (2003). Vente en primeur et investissement: Une étude sur les grands crus de Bordeaux. Economie et Prévision, 159(3), 93–103.CrossRefGoogle Scholar
Jaeger, E. (1981). To save or savor: The rate of return to storing wine. Journal of Political Economy, 89(3), 584–592.Google Scholar
Jagannathan, R., and Wang, Z. (1996). The conditional CAPM and the cross-section of expected returns. Journal of Finance, 51(1), 3–53.Google Scholar
Jensen, M.C. (1972). Capital markets: Theory and evidence. Bell Journal of Economics and Management Science, 3(2), 357–398.Google Scholar
Kourtis, A., Markellos, R.N., and Psychoyios, D. (2012). Wine price risk management: International diversification and derivative instruments. International Review of Financial Analysis, 22, 30–37.Google Scholar
Le Fur, E., Ben Ameur, H., Braune, E., and Faye, B. (Forthcoming). Financial market contagion and fine wines: The evidence of the ADCC GARCH model. International Journal Entrepreneurship and Small Business.Google Scholar
Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics, 47(1), 13–37.Google Scholar
Masset, P., and Henderson, C. (2010). Wine as an alternative asset class. Journal of Wine Economics, 5(1), 87–118.Google Scholar
Masset, P., and Weisskopf, J.-P. (2010). Raise your glass: Wine investment and the financial crisis. Association of Wine Economists (AAWE) Working Paper No. 57. New York: AAWE.Google Scholar
Nelson, D.B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica, 59(2), 347–370.Google Scholar
Sanning, L.W., Shaffer, S., and Sharratt, J.M. (2008). Bordeaux wine as a financial investment. Journal of Wine Economics, 3(1), 51–71.CrossRefGoogle Scholar
Sharpe, W.F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425–442.Google Scholar
Solnik, B.H. (1973). European Capital Markets: Towards a General Theory of International Investment. Lexington, MA: Lexington Books.Google Scholar
Storchmann, K. (2012). Wine economics. Journal of Wine Economics, 7(1), 1–33.Google Scholar