Dynamics of fine wine and asset prices: evidence from short- and long-run co-movements

Abstract

This article examines short- and long-term price linkages among the majority of fine wine and equity markets over the period of 2003 to 2012. We do not consider the price index (LIV-EX 100 or 500), as is typically undertaken in previous studies, but rather examine the auction price series of the world’s most traded wine-vintage pairs (5 Bordeaux first growth, 8 Bordeaux second growth, 5 Burgundy, 3 Rhone, 4 Italian, 5 Californian, 1 Australian and 1 Portuguese). A global equity index is also included using the Morgan Stanley Capital International World. Cointegration procedures, the Granger non-causality test, and ECM are used to analyse short- and long-run relationships among these markets. The results indicate a strong effect of financial markets on wine prices and short-term causality for certain wines. Moreover, the findings indicate short-run causality between the wines themselves, revealing a leader (exogenous) or follower (endogenous) status of certain fine wines in price dynamics, and also long-run causality for endogenous wines. This approach is relevant to portfolio diversification strategies and allows price movements to be anticipated more accurately than using an index approach.

Keywords:

• wine
• price
• causality
• ECM
• finance

JEL Classification:

• C32
• G11
• G12
• D12

Notes

¹ Acker Merrall & Condit (New York, Hong Kong), Christie’s (New York, London, Hong Kong, Los Angeles, Paris, Amsterdam, Bordeaux, Chicago, Geneva, South Kensington), Sotheby’s (New York, London, Hong Kong), Zachy’s (New York, Hong Kong, Los Angeles, Las Vegas), Bonhams (London, Hong Kong), Bonhams & Butterfields (San Francisco), Morells (New York), Hart Davis Hart (Chicago), ERI (Chicago, San Francisco), Bloomsbury/Sokolin (New York), WineGavel (San Francisco), Spectrum Wine Auctions (Dana Point, Los Angeles).

² Liv-ex 500 comprises 30–40% great Burgundy, Rhone and Italian wines, with the remainder being Bordeaux wines.

³ All the coefficients are significant and very high for Bordeaux first and second growths and Burgundy, whereas Californian coefficients are relatively low, probably because their history as financial assets may be more recent. Spearman coefficients tables are available on request.

⁴ Series that are found to be $I\left(1\right)$ are Domaine de la Romanée-Conti La Tâche, Vogüé-Musigny (Vieilles Vignes), Lafite Rothschild, Mouton Rothschild, Haut-Brion, Margaux, Latour, Harlan estate, Screaming Eagle, Dominus estate, Bryant Family, Gruaud Larose, Leoville Las Cases, Montrose, Pichon Lalande and MSCI index.

⁵ http://www.bordeaux-traders.com/news/the-liquidity-of-wine-investment/

⁶ These variables are not weighted, although the popularity is probably less important for the investor.