Finance and Financial Management Commons^™

The Risk-Return Characteristics And Diversification Benefits Of Fine Wine Investment, Tania Salomon

CMC Senior Theses

This thesis evaluates the risk-return characteristics and diversification benefits of fine wine investment. It compares the historical performance of wine to that of equity, fixed income, real estate, and commodities. I calculate the correlation, volatility, and expected returns of these assets to examine whether adding wine to a portfolio increases its risk-adjusted return. I do this through the Markowitz portfolio optimization technique. The findings suggest that wine has a low correlation with traditional assets, providing diversification benefits. My results also show that adding wine to a portfolio increases its risk-adjusted return only when there is an allocation constraint of 0 …