Volatility Laundering: On the Feasibility of Wine Investment Funds

Abstract

Volatility laundering is the attempt to make the risks of investments appear lower than they are, potentially misleading investors and counterparties. I highlight that this is a very harmful phenomenon, particularly in undermining the feasibility of wine investment funds. If fund managers provide selection-corrected returns (free of volatility laundering) compared to biased returns, I argue there would likely be limited interest in wine investment fund structures. If managers apply the wrong returns to select wines, their potential losses can be larger than their gains.

Keywords: alternative investing, wine, asset management, volatility laundering

JEL Classification: G11, G12, G13, G14, G15