Is reaching for the whisky bottle justified? Examining the value of whisky and its inclusion in the optimal portfolio

Abstract: This study aims to evaluate whisky as an investment through two research questions: “What affects the value of whisky?” and “Should whisky be included in the optimal portfolio?”. The value of whisky is examined by constructing a hedonic regression using five hedonic attributes. Also, the convenience yield associated with whisky is examined. Secondly, the performance of whisky is evaluated by using portfolio theory to determine if whisky should be included in the optimal portfolio. The hedonic regression showed that the age of the bottle and the alcohol strength had a positive marginal contribution on the price of whisky. In contrast, the year of bottling had a negative impact. Additionally, when adjusting for convenience yield and transaction cost, the total return of whisky decreased slightly. A hedonic index was constructed using nine years of data to compare the return and risk of whisky with four other assets. In summary, whisky yielded higher than its peers while maintaining a lower risk. Additionally, whisky showed diversification benefits given its negative correlation with traditional assets. Finally, whisky was found to constitute the major weight in the Minimum Variance Portfolio (MVP) and the Max. Sharpe Portfolio. Thus, whisky was concluded to be part of the optimal portfolio. The study makes several contributions to the existing literature of whisky. Firstly, it addresses the concept of convenience yield on whisky. Secondly, it extends the research of whisky with regards to portfolio theory. Finally, the study covers whisky sales from over 300 distilleries, which provides a uniquely broad perspective of the Whisky market.