A COINTEGRATION ANALYSIS OF WINE STOCK INDEXES

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Abstract

This paper analyzes price patterns and long-run relationships for both fine wine and non-fine wine, with the aim to highlight price dynamics and co-movements between series, and to exploit potential diversification benefits. Data are from Liv-Ex 100 Fine Wine for fine wine, the Mediobanca Global Wine Industry Share Price for normal wine, and the MSCI World Index as a proxy of the overall stock market. Engle-Granger and Johansen tests were used to detect whether and to what extent the series co-move in the long run and which one of the variables contributes proactively to such an equilibrium by reacting to disequilibria from the long-run path. The estimates highlight that i) the two wine indexes have a higher Sharpe ratio compared to the general stock market index, revealing wine stocks as a profitable investment per se, and ii) the absence of cointegration among the three series and the existence of possible diversification benefits. In fact, in the long-run price do not move together and, therefore, investors may be better off by including wine stocks into investment portfolios and take advantage of diversification.

Keywords: Commodity Market, Wine, Portfolio Diversification, Cointegration

Received: 22.12.2016

Accepted: 20.11.2017

How to cite this paper: Introvigne, S., Bacchiocchi, E., & Vandone, D. (2017). A cointegration analysis of wine stock indexes. Risk Governance and Control: Financial Markets & Institutions, 7(4-2), 178-188. https://doi.org/10.22495/rgc7i4c2art1