Adaptive market hypothesis: An empirical analysis of the Wine Market

Abstract

We test the nature of weak form informational efficiency present in the wine market using daily return of LIV-EX 50 index from 1/1/2010 to 12/6/2020. First, weemploy a number of statistical tests including variance ratio tests, tests for linear andnon-linear dependence and Hurst coefficient. The tests are applied on the full datasetand on four non overlapping sub-samples of equal length. The variance ratio tests providea mixed regarding informational efficiency. Evidence of non-linear dependence inthe return series was found. The Hurst coefficient values confirm the presence of longrun persistence in the wine market. Based on the mixed evidence, we test the possibilityof adaptive nature of the wine market. We employ the newly proposed AdaptiveIndex (AI) to quantify the degree of information inefficiency in the wine market atany instance. Our results confirm that wine market is adaptive and periodically shiftsbetween states of efficiency and inefficiency. The wine market is found to be relativelyfree from the Covid-19 induced shock and the safe haven property of wine is thus confirmed.Finally, impact of various macroeconomic and financial events on wine marketefficiency is identified by using AI