Wine market efficiency: Is glass half full or half empty?

Abstract

This study investigates the efficiency of wine market and explores the predictability in wine returns. Daily returns on a portfolio of wines denominated in the original currency of trade for the period exhibit significant positive serial correlation that persists further when wine returns are sampled at weekly and monthly frequencies. Abnormal excess returns on wine are earned by various trading strategies designed to exploit trending behavior in asset prices before trading fees. After accounting for market frictions such as transaction costs, the abnormal profitability from wine trading evaporates. Claims of inefficiency and return predictability in a market sensitive to market frictions can be exaggerated when the latter are ignored.