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Home
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JWE-Articles
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Journal of Wine Economics Volume 9 | 2014 | No. 3
»
To Save or Savor: A Review of Approaches for Measuring Wine as an Investment

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

James J. Fogarty & Rohan Sadler
JEL Clasification: G11, C61, C13
Pages: 225-248
Full Text PDF
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 appro- priate 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 port- folio risk.

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