Investing in the wine market : a country-level threshold cointegration approach

This paper investigates, for a selection of countries, the long-run relationship between wine share price indexes and general stock market indexes enquiring about their different speed of adjustment to the long-run equilibrium. The goal is to provide traders with signals of information inefficiency that could be exploited to make profitable investment strategies. We apply a Threshold Vector Error Correction Model (TVECM) to data from the Mediobanca database, which covers companies in the wine industry listed on regulated stock market in Australia, Chile, China, France and the US. The dataset covers the time period going from January 1, 2001, to the end of February 2009. The estimates of the TVECM confirm the existence of threshold cointegration between wine and composite indexes for the period under study; movements of one index can be used to predict fluctuations of the other and active traders may enter the market to implement arbitrage activities.