Beyond the negative relation between return and conditional volatility in the wine market

Beyond the negative relation between return and conditional volatility in the wine market Purpose – The purpose of this paper is to examine fine wine’s safe-haven status with respect to US equity movements. Design/methodology/approach – We use a generalized autoregressive conditional heteroscedasticity model and its variant to measure the asymmetric reaction to positive and negative shocks. Findings – Our empirical results show an inverted asymmetric volatility in the wine market; positive shocks increase the conditional volatility more than negative shocks. That is the opposite reaction in the volatility of equity returns occurs in the wine market. As leverage effect and volatility feedback effect do not adequately explain this reaction, we follow the work of Baur (2012) and propose the safe haven effect. Several robustness tests largely confirm the empirical findings, with major implications for wine investors. Finally, we provide further evidence on the benefits of adding wine investments to an equity portfolio through an increase in risk reduction effectiveness. Research limitations/implications – Based on the results of the robustness analysis, the recommendations in terms of including fine wines in portfolios must be issued with caution. Practical implications – Our findings are crucial to the needs of market participants who are interested in including wine assets in their equity portfolio. Originality/value – No previous study investigates the safe haven property of fine wine return, and accounts for risk reduction effectiveness when adding wine assets to a portfolio of US equities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Wine Business Research Emerald Publishing

Beyond the negative relation between return and conditional volatility in the wine market

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1751-1062
DOI
10.1108/IJWBR-01-2014-0006
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine fine wine’s safe-haven status with respect to US equity movements. Design/methodology/approach – We use a generalized autoregressive conditional heteroscedasticity model and its variant to measure the asymmetric reaction to positive and negative shocks. Findings – Our empirical results show an inverted asymmetric volatility in the wine market; positive shocks increase the conditional volatility more than negative shocks. That is the opposite reaction in the volatility of equity returns occurs in the wine market. As leverage effect and volatility feedback effect do not adequately explain this reaction, we follow the work of Baur (2012) and propose the safe haven effect. Several robustness tests largely confirm the empirical findings, with major implications for wine investors. Finally, we provide further evidence on the benefits of adding wine investments to an equity portfolio through an increase in risk reduction effectiveness. Research limitations/implications – Based on the results of the robustness analysis, the recommendations in terms of including fine wines in portfolios must be issued with caution. Practical implications – Our findings are crucial to the needs of market participants who are interested in including wine assets in their equity portfolio. Originality/value – No previous study investigates the safe haven property of fine wine return, and accounts for risk reduction effectiveness when adding wine assets to a portfolio of US equities.

Journal

International Journal of Wine Business ResearchEmerald Publishing

Published: Nov 11, 2014

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