In family we trust - in good and bad times (download) with Philippe Masset and Cédric Poretti, International Review of Finance, forthcoming. This short report investigates the stock market behavior of Swiss companies during the COVID-19 pandemic. Results suggest that family firms performed better during the outbreak and post-lockdown periods than widely-held firms. Family firms also displayed a larger abnormal trading volume drop than widely-held companies. In size-sorted subsamples, the volume difference appears more pronounced for smaller firms. We explain these findings by family firms, especially smaller ones, predominantly attracting investors with a long-term horizon. Such investors are less likely to sell during market turmoil, making family firms not only less liquid but also less sensitive to market fluctuations.
To share or not to share: An analysis of wine list disclosure by Swiss restaurant owners (download) with Olivier Gergaud, Philippe Masset and Alice Pedrinelli, Journal of Wine Economics, forthcoming. This paper uses data from the 2021 Swiss edition of the Gault&Millau food guide to analyze the probability with which restaurant owners decide to share their wine list with the public. This is an important question relating to the amount of information circulating in markets characterized by information asymmetry in the context of experience and credence goods. We find that restaurant owners are more willing to share wine lists with others if competition is limited or their wine list does not contain idiosyncratic information that competitors may use strategically. Interviews indicate the challenge for restaurants to balance the risk of sharing information with competitors and the opportunity to attract wine lovers by revealing an appealing wine list. We also show that this decision depends on cultural considerations.
Online Reputation and Debt Capacity (download) with François Derrien, Alexandre Garel and Arthur Petit-Romec, Journal of Financial and Quantitative Analysis, forthcoming. This paper explores the effects of online customer ratings on debt capacity. Using a large sample of Parisian restaurants, we find a positive and economically significant relation between customer ratings and bank debt. We use the locally exogenous variation in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Customer ratings have more impact on debt capacity when information asymmetry is higher. They affect financial policy through a reduction in cash flow risk and greater resilience to demand shocks. Restaurants with good ratings use their extra debt capacity to invest in tangible assets.
Efficient Pricing of Bordeaux en primeur wines (download) with Jean-Marie Cardebat and Philippe Masset, Journal of Wine Economics, 2023, 18(1): 39-65. This paper proposes an approach to determine efficient release prices on the Bordeaux en primeur (primary) market. The model exploits information from the secondary market to estimate efficient release prices. We apply the model to a representative sample of wines from the 2021 vintage. The results show that most chateaux released their wines at prices that were too high. The median overpricing is 5.2% but exceeds 30% for some wines. This situation may be partially attributed to excessively uniform pricing caused by the tendency of chateaux with similar status to release their wines at similar price levels.
Fine wine pricing in a small and highly competitive market(download) with Philippe Masset and Alexandre Mondoux, International Journal of Wine Business Research, 2023, 35(1): 164-186. This study aims to identify the price determinants of fine wines in a small and competitive market, which are characteristics found in many lesser-known wine-producing countries and are often difficult to analyse due to a lack of data. Using hand-collected data from Swiss wineries over the period 2014-2018, we estimate the wine and market characteristics driving fine wine prices. We complement this analysis by studying the impact a sudden currency shock and a reduction in information asymmetries had on prices. Prices mainly depend on collective reputation, production techniques, and product positioning. Surprisingly, following a sharp appreciation of the Swiss Franc, producers did not reduce prices. Finally, the arrival of a highly influential wine expert on the market also had a positive price effect on rated wines and producers. Both hint at an attempt of wineries to reposition themselves relatively to international competition. Few studies examine the price drivers in lesser-known wine markets, where competition is fierce. Our results show that wine pricing differs from other more famous and larger wine regions. We also are the first to analyse the impact of a currency shock and a reduction in information asymmetries on wine prices.
Cross-dimensional measures of asset lightness and fee orientation in lodging groups (download) with Sonja Lussi, Philippe Masset and Inès Blal, International Journal of Hospitality Management, 2023, 109: 103391. This study proposes cross-dimensional measures of the degree of implementation of the lodging industry's asset-light & fee-oriented (ALFO) strategy. We apply a common factor analysis to measure the degree of implemented ALFO strategy on a sample of 14 lodging companies over the period 2001-2021. The analysis confirms that there is no one-size-fits-all approach and that companies position themselves distinctively on the two dimensions. FO has strengthened continuously since 2005, while the degree of AL increased rapidly between 2001 and 2005, but its evolution has been more erratic since then. The evidence further suggests that intangibles have gained in importance over recent years, explaining the deceleration in asset reduction in the balance sheet of some companies. This study also contributes to the debate on the financialimpact of the asset-light strategy. We show that AL and FO positively affect performance and value and that by combining them, the effect doubles.
Chasing dividends during the COVID-19 pandemic (download) with Nicolas Eugster, Romain Ducret, and Dusan Isakov, International Review of Finance, 2022, 22(2): 335-345. This paper investigates the impact of the COVID-19 pandemic on the trading behavior of investors around ex-dividend dates in Europe. The sudden decrease in the number of companies paying dividends reduced the opportunities to capture dividends. The firms that have maintained dividend payments during the pandemic thus attracted more interest than before. This led to a doubling in the magnitude of stock return patterns usually observed around ex-dividend days. Our evidence indicates that dividend-seeking investors are likely to be the main driver of the price patterns observed around ex-dividend dates.
At what price should Bordeaux wines be released?(download) with Philippe Masset, Economic Inquiry, 2022, 60(1): 392-412. This paper models optimal release prices of an experience good recurrently issued on markets. Using a sample of Bordeaux wines, we find that using a minimal number of intrinsic and extrinsic attributes is sufficient to explain a large proportion of release prices. We further observe a significant relationship between primary market prices and secondary market prices and general economic conditions. Release prices can deviate from secondary market prices in the short run but remain aligned over the long run. Finally, an out-of-sample analysis indicates that short-run mispricing directly affects the purchase behavior of customers.
What If Dividends Were Tax‐Exempt? Evidence from a Natural Experiment (download) with Dusan Isakov and Christophe Pérignon, Review of Financial Studies, 2021, 34(12): 5756-5795. We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. We exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends. We show that treated firms increase their dividend payout by around 30% after the tax cut. The impact on payout is less pronounced for firms prone to agency conflicts. We find a significant positive abnormal stock return after the announcement of the payment of a tax-exempt dividend. However, reducing dividend taxes does not boost investment.
Analysing the risks of an illiquid and global asset: The case of fine wines (download) with Philippe Masset, Jean-Marie Cardebat, Benoit Faye, and Eric Le Fur, (Lead Article) Quarterly Review of Economics and Finance, 2021, 82: 1-25. We use a unique and very deep database to examine the performance of wine investments over the period 2003–2014. Our results reveal that the returns stemming from those investments are important but can largely be explained by their exposure to common risk factors. As such and contradicting prior evidence, fine wines do not seem to offer abnormal returns. While explicitly accounting for non-synchronous trading, we how that the market beta of wine is always positive and significant. Liquidity risk is also an essential determinant of wine returns. The fact that the liquidity factor, based on stock returns, can explain the returns on an exotic asset such as wine suggests that illiquidity is a common, cross-asset source of risk. This paper contributes to the literature on alternative investments and wine as an asset class and provides additional evidence regarding the nature of liquidity risk.
New York restaurants: a wine odyssey between 1865 and 1920 (download) with Philippe Masset, Cornell Hospitality Quarterly, 2021, 62(3): 297-312. We examine the existence of wine in New York City restaurant menus over the period 1865 to 1920 for a sample of 850,000 restaurant menu items and 51,000 wines. Wine was already commonly present on menus in 1865, and its offering increased up until 1914 before dropping with the outbreak of First World War (WWI). Casual restaurants offered a narrower wine selection. Special menus displayed a significantly higher probability of containing wine but with a more limited choice indicating that wine was especially appreciated on special occasions. French wines, especially from Bordeaux and Champagne, were the most represented on menus followed by wines from Germany. The average selling price of a bottle of wine was around US$40 in 2018 terms. Prices, however, fluctuated widely over time and wine type. Notably, American wines were about 50% less expensive than French or German wines.
Breaking Bad: an Investment in Cannabis (download) Finance Research Letters, 2020, 33: 101201. This paper investigates the risk and return features of an investment in the cannabis industry. It further describes the current state of the market for cannabis and critically examines its potential future development. Findings show that a portfolio of cannabis stocks displays high volatilities and returns, but also low correlations and beta coefficients with regard to overall stock markets, other sin industries or cryptocurrencies. This makes it an interesting addition to financial portfolios.
The Price of International Equity ETFs: The Role of Relative Liquidity (download) with Christina Atanasova, Journal of International Financial Markets, Institutions and Money, 2020, 65: 101190. We examine the effect of the relative liquidity of international equity exchange-traded funds (ETFs) and their constituent portfolios on the price difference between the fund’s market prices and its net asset values. We use data for a sample of 584 international equity ETFs listed in the U.S. over the period January 2012 to December 2017 and find that higher liquidity is associated with a lower absolute value of the ETF premium/discount. We document a positive relationship between liquidity and the price convergence of the ETFs and their underlying shares. The effect of liquidity on convergence is stronger for ETFs with high holding costs.
Last Frontier Investments: The Case of Alpine Wines (download) with Philippe Masset and Clémentine Fauchery, Journal of Wine Economics, 2020, 15(2): 181-206. We identify and examine the performance of frontier investments from 2002 to 2017. Using fine wine as a setting, we find that the trade frequency and value of frontier investments in the form of Alpine wines have increased in recent years, leading to a rise in their prices above inflation rates. We further document that this frontier investment has been favorable in terms of risk-adjusted returns and volatility for investors. We also observe that the inclusion of frontier wines in a financial portfolio is favorable for investors, both in terms of returns and diversification benefits, due to low correlation coefficients. The identification and investment into frontier assets appears beneficial for investors looking for new opportunities.
Family Ownership, Asset Levels and Firm Performance in Western European Hospitality Companies (download) with Philippe Masset and Irena Uzelac, Journal of Hospitality & Tourism Research, 2019, 43(6): 867-889. This article uses a comprehensive sample of companies from 16 Western European countries over the period 2004 and 2016 to examine the relationship between blockholder ownership, asset levels, and corporate performance in the hospitality industry. We find evidence that both family and nonfamily blockholders display a higher use of assets in the lodging industry, but only nonfamily blockholders do so in the food and beverage industry. At the same time, nonfamily blockholders tend to display a poor performance in both industries, while this is only true for the lodging industry in the case of family-owned businesses. Finally, we show that asset levels moderate the observed ownership–performance relationship. Our results hold both for static and dynamic asset measures and taking the global financial crisis into account.
Behavioural heterogeneity in wine investments (download) with Adrian Fernandez-Perez, Bart Frijns, and Alireza Tourani-Rad, Applied Economics, 2019, 51(30): 3236-3255. We introduce a heterogeneous agent model to explain the dynamics of fine wine investments. Our results show evidence of the existence of both fundamentalists – those who trade on mean-reversion towards a fair value – and chartists – those who extrapolate recently observed price trends – in the wine market. Moreover, we document that market participants switch between the two trading strategies, allocating more weight to the strategy that has been the most accurate in forecasting wine index values in the recent past. This switching behaviour can explain the large variations in index values (bubbles and crashes) that are observed in the fine wine market.
When Rationality meets Passion: On the Financial Performance of Collectibles (download) with Philippe Masset, Journal of Alternative Investments, 2018, 21(2): 66-83. This article examines prior evidence and proposes an empirical study of the performance of passion investments in comparison with financial and real assets over the past 20 years. Over this period, classic cars and fine wines (but not visual art) display better returns than U.S. equity, fixed income, and real estate. Volatilities are, overall, low but increase once returns are adjusted for the inherent illiquidity on collectible markets. In a CAPM framework, only classic cars yield significant risk-adjusted returns with an annualized alpha of 5%. At the same time, correlations and systematic risk are low for all collectibles. This diversification benefit is confirmed by a 7% portfolio risk reduction following the inclusion of collectibles in a traditional financial portfolio. The authors further document that the inherent segmentation of collectible classes extends the benefits of cross-asset to intra-asset class diversification. Finally, they find that collectibles have performed slightly less well since the Global Financial Crisis.
Wine indices in practice: nicely labeled but slightly corked (download) with Philippe Masset, Economic Modelling, 2018, 68: 555-569. This paper examines and compares wine price indices available on the wine market with those proposed in academia. We especially analyze the impact illiquidity has on the different indices and validate our findings using a simulation which allows us to define the biases induced by illiquidity on the statistical properties of the indices. We also propose adjustments to help market participants improve the reliability of wine indices and ultimately their decision-making. Our evidence indicates that both the volatility and the beta of fine wine is understated when estimated with existing wine index data. The true volatility and beta of the First Growths from Bordeaux appear to be close to 20%, respectively 0.45–0.60, suggesting that the diversification potential of fine wine is more limited than commonly believed.
Red obsession: the ascent of red wine in China (download) with Philippe Masset, Benoit Faye, and Eric Le Fur, Emerging Markets Review, 2016, 29: 200-225. This article uses hammer prices from five global auction houses to analyse the price premium Bordeaux fine wine yielded at Hong Kong wine auctions. We find that fine wine was on average sold at a 19% premium in Hong Kong. We further observe that the Hong Kong premium is not uniform and most pronounced for wines with perfect Parker scores and the most powerful brands. The premium has declined throughout the sample period from 60% in 2008 to a level of 15% since 2012. This can be attributed to the increase in knowledge on fine wine by Chinese customers.
A study of the performance of fine wine on the Swiss market (download) with Philippe Masset, International Journal of Entrepreneurship and Small Business,2016, 26(4): 566-582. This paper studies the price evolution and the performance of an investment in fine wine on the Swiss market over the period 2002-2012. Using a repeat-sales-regression approach we calculate different wine indices based on auction hammer prices obtained by Steinfels Weinauktionen. Our results show that different fine wines followed a similar evolution across the sample period but that the amplitude of returns strongly depended on wine regions and types. While Bordeaux and Burgundy wines performed well, wines from the Rhône valley and Italy show a poorer performance. Compared to financial assets wine has significantly outperformed stocks, but not bonds. We further find that the Swiss franc appreciation has had a significant impact on wine prices.
Pay-out policies in founding family firms (download) with Dusan Isakov, Journal of Corporate Finance, 2015, 33: 330-344. This article analyses founding family influence on pay-out policies for Swiss listed firms over the period 2003–2010. We hypothesise that family firms have different incentives and characteristics that affect pay-out decisions and propose three possible explanations: agency theory, reputation building and family income needs. Our results show that founding family firms display significantly higher dividend pay-outs relative to companies with other ownership structures. We also examine specific family characteristics and document that a family's stake, active involvement and generation play an important role in determining pay-out policies. Our findings appear to be consistent with the family income hypothesis and to some extent with reputational concerns.
Wine funds - an alternative turning sour? (download) with Philippe Masset, (Lead Article) Journal of Alternative Investments, 2015, 17(4): 6-20. This article examines the performance, selectivity, and market-timing abilities of wine fund managers over the 2000–2013 period. The authors hypothesize that wine fund managers should be able to profit from market inefficiencies on the wine market and generate abnormal returns for investors. Their results show that fund managers’ overall selectivity and market-timing abilities appear to be limited. Only one fund offers positive risk-adjusted returns and two funds show a tendency for market timing. Considering non-quantifiable risks, wine funds thus do not appear to be interesting investments.
Wine tasters, ratings and en primeur prices (download) with Philippe Masset and Mathieu Cossutta, Journal of Wine Economics, 2015, 10(1): 75-107. This paper examines the ratings of 12 influential wine critics on the Bordeaux en primeur market over the vintages 2003–2012. We hypothesize that wine experts differ significantly in their rating approach and influence on prices. We find that European critics are less transparent and in general more severe in their scoring than their American counterparts. Experts also appear to reach a relatively strong consensus on overall wine quality but have more diverse opinions on wines that achieve a surprising level of quality given the vintage, the ranking, or the appellation from which they originate. Our evidence also suggests that Robert Parker and Jean-Marc Quarin are the most influential critics, as a 10% surprise in their scores leads to a price increase of around 7%. We further find that their impact is higher for appellations and estates that are not covered by the official 1855 classification and for the best vintages.
Are founding families special blockholders? - An investigation of controlling shareholder influence on firm performance (download) with Dusan Isakov, (Lead Article) Journal of Banking & Finance, 2014, 41: 1-16. This paper examines how family and non-family ownership affects the performance of Swiss listed firms from 2003 to 2010. We distinguish between these two types of controlling shareholders since they have different objectives. We hypothesise that only family shareholders have a real incentive to reduce agency costs whereas non-family blockholders are similar to widely held companies. Our results show that family firms are more profitable than companies that are widely held or have a non-family blockholder. For market valuations we find that the family stake plays a critical role and document a concave relationship between family ownership and Tobin’s Q. We also investigate the impact of different features of family firms on performance, and document that the generation of the family and the active involvement of the family play an important role for market valuation.