1. Last Frontier Investments:
Fine Wines of the Alps
Clémentine Fauchery, Philippe Masset & Jean-Philippe Weisskopf
Ecole hôtelière de Lausanne
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

2. Analysis of Alpine wines
Introduction
 Motivation
Data
Analysis of Alpine wines
Conclusion
Quantitative easing and low interest rates following the GFC:
Most assets are now extremely expensive  low expected returns
Inflation risk is on the rise
More generally, the risk of a market downturn is on the rise
Investors allocate more to alternative investments and especially tangible assets. Why?
Diversification  reduction in portfolio risk
Hedge against inflation
Potentially higher (risk-adjusted) returns than traditional assets
Investors have started to push the frontier of investable assets ever further
 New frontier : the frontier of alternative alternatives
Research question: what are the implications of investing in goods/assets that are located near or on the frontier?
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

3. The perfect laboratory
Introduction
 Motivation
Data
Analysis of Alpine wines
Conclusion
The perfect laboratory
The market for fine wines offers a perfect setting to investigate frontier investments and their financial specificities
Segmentation of the market
Few investment-grade wines: mostly Bordeaux and Burgundy
Many “other” wines including a large number of excellent but non-investment- grade wines
Frontier = not fixed
German Riesling used to be more expensive than Bordeaux wines
Burgundy wines = have only recently become financialized
Focus on Alpine Wines
Classic in style = in line with what the market is currently looking for
The finest wines from the region are of excellent quality, have a good ageing potential, are produced in limited quantities and their reputation is on the rise
They thus seem to be close to the frontier
Benchmarks
Bordeaux, Burgundy and traditional financial markets
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

4. Analysis of Alpine wines
Introduction
 Research agenda
Data
Analysis of Alpine wines
Conclusion
Research agenda
Proposition 1: Alpine wines have entered into a financialization process over the last decade and are thus becoming actively traded on secondary markets.
Proposition 2: Alpine wines have seen their prices increase at a pace exceeding inflation since their financialization process started.
Proposition 3: Alpine wines have delivered positive risk-adjusted returns since their financialization process started.
Proposition 4: Alpine wines have maintained a low correlation with traditional asset classes and other wine regions and thereby offer a significant diversification potential.
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

5. Analysis of Alpine wines
Introduction
Data 
Analysis of Alpine wines
Conclusion
Data
Our wine data comes from Steinfels Zürich
Leading auction house located in the middle of Europe
Essentially no home bias
The dataset covers period 01/2002 to 12/2017 and it contains more than 25,000 observations (hammer prices and details on the lot auctioned)
Alpine wines: the producer must be situated in proximity of the Alps and/or of an Alpine lake and/or of an Alpine river
Austria, Germany, Switzerland: 20 wineries (e.g., Gantenbein, Egon Müller)
Northern Italy: 15 wineries (e.g., Gaja, Giacosa)
Rhône Valley in France: 14 wineries (e.g., Chave, Rayas)
Benchmarks:
Burgundy: 15 wineries (e.g., DRC, Roumier)
Bordeaux: 14 wineries (all first growths from the Médoc and their equivalent from St-Emilion, Pomerol and Sauternes)
Economic and Financial data come from Datastream
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

6.  Financialization of Alpine wines
Introduction
Data
Analysis of Alpine wines
 Financialization
Conclusion
 Financialization of Alpine wines
Proposition 1: Alpine wines have entered into a financialization process over the last decade and are thus becoming actively traded on secondary markets. 
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

7. Analysis of Alpine wines
Introduction
Data
Analysis of Alpine wines
 Price evolution
Conclusion
 Index estimation and analysis (1)
Indices estimated with the help of the Repeat-Sales Regression (RSR) approach.
Resulting wine indices:
Value of 100 as of 2007
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

8. Analysis of Alpine wines
Introduction
Data
Analysis of Alpine wines
 Price evolution
Conclusion
 Index estimation and analysis (2)
Proposition 2: Alpine wines have seen their prices increase at a pace exceeding inflation since their financialization process started. 
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

9.  Risk-adjusted returns (1)
Introduction
Data
Analysis of Alpine wines
 Risk-adjusted performance
Conclusion
 Risk-adjusted returns (1)
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

10.  Risk-adjusted returns (2)
Introduction
Data
Analysis of Alpine wines
 Risk-adjusted performance
Conclusion
 Risk-adjusted returns (2)
Proposition 3: Alpine wines have delivered positive risk-adjusted returns since their financialization process started. 
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

11. Analysis of Alpine wines
Introduction
Data
Analysis of Alpine wines
 Diversification
Conclusion
 Diversification potential and portfolio analysis (1)
Correlation table:
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

12. Analysis of Alpine wines
Introduction
Data
Analysis of Alpine wines
 Diversification
Conclusion
 Diversification potential and portfolio analysis (2)
Proposition 4: Alpine wines have maintained a low correlation with traditional asset classes and other wine regions and thereby offer a significant diversification potential. 
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

13. Analysis of Alpine wines
Introduction
Data
Analysis of Alpine wines
Conclusion 
Conclusion
Investigate the frontier of investable assets
Use the market for fine wine with a focus on Alpine wines
Benchmark with traditional financial assets and already financialized wine regions
Propose, test and validate 4 propositions
Contribute to both practitioners and academics:
Provide a comprehensive analysis of the market for Alpine wines from Austria, Germany, Switzerland, Northern Italy and the Rhone Valley
Model and evaluate the price dynamics of these wines
Relate to a more general debate in finance on frontier investments, their proper identification and their performance in an investor’s portfolio
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

14. Thank you! Introduction Modelling “En primeur” prices
Modelling subsequent returns
Conclusion
Thank you!
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

15. Analysis of Alpine wines
Introduction
Data
Analysis of Alpine wines
 Price evolution
Conclusion
Index estimation and analysis (2b)
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery

16. Analysis of Alpine wines
Introduction
Data
Analysis of Alpine wines
 Diversification
Conclusion
Diversification potential and portfolio analysis (2b)
© 2018 P. Masset & J.-P. Weisskopf & C. Fauchery