Is Wine a Good Choice for Investment?

Abstract

We extend our understanding on the role of wine investment within a portfolio of different assets (US/UK equities, bonds, gold, and housing) by considering a rich methodology based, among others, on the mean-variance and stochastic-dominance approaches. The main findings suggest that wine is the best investment among all individual assets under study, and investors prefer to invest in with-wine portfolios than without-wine portfolios to gain higher expected utility when short sale is not allowed. However, investors are indifferent between portfolios with and without wine when short-selling is allowed. In addition, with-wine portfolios generally either dominate individual assets or are indifferent from individual assets. Interestingly, the with-wine portfolios first-order stochastically dominates housing in both long-only and short-allowed strategies, pointing towards market inefficiency and thus the possibility for an expected arbitrage opportunity. Finally, we reveal that investors prefer the low-risk with-wine portfolios to the equal-weighted portfolio, but are indifferent between the high-risk with-wine portfolios and the naive portfolio for both long-only and short-allowed strategies. Our findings can be used by investors in their investment processes and reveal the possibility of earning abnormal returns when wine is included in the investment.