The fine wine investment market, valued at around US $4bn a year, is currently dominated by French wines.
But research published in International Review of Financial Analysis shows that diversification – specifically across Italian, Australian and Portuguese wines – could prove a shrewd move for investors.
The wine industry is built around one of the most ancient global commodity markets. Prices of fine wines have soared in recent years due to the fast-growing demand from Asian and Far Eastern markets.
But prices can fluctuate, and depend on a number of factors including weather, reputation, year of vintage, stock availability, and the wider economic situation.
The new study investigates the benefits of diversifying investments across countries and wine varieties.
Lead author Dr Apostolos Kourtis from UEA’s Norwich Business School said: “The investment market deals mostly with French wines, but we found that diversification across the different varieties of French wine is not that effective.
“However, our results suggest that diversification across other wine-producing countries is likely to be much more efficient in reducing overall investment portfolio risk. This is probably due to the fact that fine wine prices are sensitive to climate variations at a geographical level.
“As with all commodities, the fine wine market has great potential for producers and investors alike. The continuing success of this market will depend on the ability to monitor and manage price risk in a transparent manner.
“This is why we propose the development of fine wine derivative markets which could trade options and futures contracts on standardized wine price indices. Our work shows how such derivative contracts could be analyzed and priced.”
Source: UEA
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