Thursday, September 19, 2013

Dimson et al: "The impact of aging on wine prices and the performance of wine as a long-term investment"

Professor Dimson appears to be on a bit of a non-traditional asset class roll. Last week it was stamps, coins and violins, this week it's Bordeaux.
Via the Social Science Research Network:

We examine the impact of aging on wine prices and the performance of wine as a long-term investment, using a unique historical database for five long-established Bordeaux wines that we construct from auction and dealer prices. We estimate the life-cycle price patterns with a regression model that avoids multicollinearity between age, vintage year, and time by replacing the vintage effects with annual data on production yields and weather quality. In line with the predictions of an illustrative model, we observe the highest rates of appreciation for young high-quality wines that are still maturing. The findings suggest that the non-financial “psychic return” to holding wines that are substantially beyond maturity is at least 1%. Using an arithmetic repeat-sales regression, we estimate an annualized return to wine investments (net of insurance and storage costs) of 4.1%, in real GBP terms, between 1900 and 2012. Wine underperforms equities over this period, but outperforms government bonds, art, and stamps. Wine and equity returns are positively correlated.

Free download (42 page PDF)
A wine joke:
The wine tasting was lovely until a self-professed oeniphile started droning on about the "oily richness" of some "scamp of the vineyards," describing another as having "the faintest soupçon of asparagus and the tremulousness of a mimolette.” and extolling the merits of some Château de prétense no one had ever heard of.
Finally, pausing to take a breath he said "Je vais a Bordeaux" and one of his not-so-enthralled audience asked "What's that mean?" to which the oeni-weeny replied "I'm going to Bordeaux".
His interlocutor then asked, "Who's Doe?" 
That's my story and I'm sticking to it.

Last week:
Are collectibles good long-term investments? "The Investment Performance of Emotional Assets"