Italian Fine Wines: Pricing, Performance Profile and Herding Behavior among International Buyers

This paper investigates the case of Italian fine wine as an investment. Firstly, employing a hedonic approach, significant price premiums are detected for various observable wine attributes. For example, variables such as wine classification, producer, time and place of sale, and weather conditions in the year of harvest, all contribute to the determination of wine prices. Moreover, the aging of wine also affects prices and it suggests non-pecuniary benefits of wine. Secondly, 18,019 hammer prices are used to construct Italian wine indices over 1997-2018. A hedonic model as well as a repeat-sales regression estimate a real financial return of around 4% with low risk. The risk-return profile seems to outperform other art assets and the Italian equity index. Lastly, a behavioral approach based on the autocorrelation of returns and some dispersion measures is implemented to study herding behavior among international investors in Italian wine. Results discard the presence of herding and are robust when controlling for the macroeconomic situation of the Italian and US markets.