Volatility spillovers between fine wine and major global markets during COVID-19: A portfolio hedging strategy for investors

Document Type

Article

Source of Publication

International Review of Economics and Finance

Publication Date

3-1-2022

Abstract

Motivated by the growing necessity of portfolio diversification, this paper investigates the dynamic connectedness among fine wine, equities, bonds, crude oil, commodities, gold, copper, shipping and real estate by applying the Diebold and Yilmaz (2012) approach, based on the time-varying parameter vector autoregressive (TVP-VAR) model of Antonakakis et al. (2020), for the period 1/1/2010-5/31/2021. Our results indicate moderate volatility spillovers among the markets over time, whereas total connectedness is prone to exogenous shocks, reaching its peak during stress periods. Equities, crude oil, gold and fine wine are the net contributors of spillovers, whereas real estate, commodities, copper, bonds and shipping constitute the net receivers of the diffused shocks. Furthermore, we estimate and compare the hedging ability of fine wine, before and after the emergence of the coronavirus pandemic, to instruct investors in rebalancing their portfolio strategies during COVID-19. The empirical findings suggest that fine wine can form an effective hedging tool to reduce the risk deriving from adverse movements of the markets and its hedging ability was enhanced during COVID-19, with few exceptions. Regardless time period, the highest hedging effectiveness can be achieved by taking a long position in the volatility of crude oil and a short position in the volatility of fine wine.

ISSN

1059-0560

Publisher

Elsevier BV

Volume

78

First Page

629

Last Page

642

Disciplines

Business

Keywords

Alternative investments, Connectedness, COVID-19 pandemic, Fine wine, Portfolio diversification

Scopus ID

85123069961

Indexed in Scopus

yes

Open Access

no

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