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JWE-Articles
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Journal of Wine Economics Volume 17 | 2022 | No. 3
»
Left, right, or both? Long-run returns from Bordeaux

Left, right, or both? Long-run returns from Bordeaux

Tor N. Tolhurst
JEL Clasification: G11; G12; L66; Q11
Pages: 225–240
Full Text PDF
Abstract

As the market for fine-wine investing matures, basic questions of portfolio strategy remain unexplored. I evaluate how adding fine wine from the superstar châteaux of Bordeaux’s Right Bank might complement the traditional focus on the five first-growths of Bordeaux’s Left Bank. Fundamentals for the Right Bank’s superstars are attractive: they produce roughly an order of magnitude less, face different production conditions, and receive equally impressive critical reviews. However, they receive far less attention than their Left Bank counterparts. To examine returns over the long run, I hand-collected 10,885 prices for eight wines from an archive of 391 Sherry-Lehmann catalogs, a New York City retailer, which began at the end of Prohibition. Using these historical price records, I compare the real returns from investing in the five Premier Cru to a port- folio that adds three superstar châteaux from the Right Bank: Ausone, Cheval Blanc, and Petrus. I find the geometric-average annual return was 6.78% in real terms from 1938 to 2017 for the joint portfolio, less than 0.01% different, but with better risk-reward as mea- sured by the Sharpe ratio. Additionally, I find the life cycle of aging is substantially differ- ent across the two Banks, which could provide further diversification benefits for the strategic investor.

Keywords: asset selection; diversification; hedonic models; repeat-sales price indexes; wine prices

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