Time-Varying Risk Premiums in the Framework of Wine Investment

Hachmi Ben Ameur · Benoît Faye

24 citations0/0 files storedJournal of Wine Economics

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Art History and Market Analysis Financial Markets and Investment Strategies Financial Risk and Volatility Modeling

Abstract

Abstract This article examines the time-varying risk premium with reference to investments in fine wines. Unlike previous studies, our article focuses on this issue within the context of the financial crisis. To do this, we propose the use of a conditional capital asset pricing model and a multivariate generalized autoregressive conditional heteroskedasticity model on several appellation wines worldwide. We find that Bordeaux fine wines were more volatile during the financial crisis and are less volatile in non-crisis periods. In addition, while the volatility of Burgundy wines is second only to Bordeaux wines, non-French fine wines (Australia, Italy, and USA) exhibit inverse volatility trends to French fine wines. (JEL Classifications: C50, G01, G11, Q13)

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1986Generalized autoregressive conditional heteroskedasticity 1982Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1991Conditional Heteroskedasticity in Asset Returns: A New Approach 1993On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks 1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]

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