WHEN WILL BUBBLES OCCUR IN THE FINE WINE MARKET?

This paper detects the existence of bubbles in the fine wine market and investigates when the bubbles originate and crash. We utilize the Generalized Supremum Augmented Dickey-Fuller test (Phillips et al., 2012, 2013) and the empirical result indicates that there are four bubbles in the fine wine market when the price deviates from its intrinsic value. The three bubbles can be explained by the excessive demand of the emerging market, notably from China. The last bubble is attributed to the pound exchange rate plunging, mainly due to the Brexit. These findings are in agreement with the bubble model ameliorated by Gurkaynak (2008) considering that asset price can be decomposed to bubbles and fundamental parts. Therefore, in order to favor fine wine price stabilization, the regulators from this market should identify bubbles in order to notice their evolutions. The authorities should also manage the expectations of the public and reduce speculative behavior.