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Components of investment grade wine prices

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We investigate the fine-wine market from a weak-form efficiency viewpoint using the London International Vintners Exchange index family for the period from January 1993 to February 2010. The autoregressive moving average spectral estimates of variance ratios (VRs) show that the random walk (RW) hypothesis can be rejected regardless of USD or GBP currency denomination and regardless of inflation. The wine returns exhibit large positive autocorrelation, resulting in VRs that are above unity, which indicates that apart from the RW, a stationary component characterizes wine prices. The large stationary component can be associated with the illiquidity of wines and the inefficiency of young wines. The RW component of wine prices is likely to be driven by the market factor. Owing to currency risk, a US wine investor faces a higher risk than his/her UK counterpart, although wines hedge against inflation in both currencies.
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Keywords: alternative investment; market efficiency; wine

Document Type: Research Article

Affiliations: Department of Finance, Budapest University of Technology and Economics, Magyar tudósok krt. 2. 1117, Budapest, Hungary

Publication date: September 1, 2013

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