In this paper, we use copula-GARCH models applied to daily data from March 2010 to March 2018 to test the time-varying dependence of the Liv-ex 50, a secondary market fine wine index comprised of the ten most recent vintages of the five Bordeaux First Growths, with a portfolio composed of the six main stock markets (S&P 500, CAC 40, DAX 30, FTSE 100, and Hang Seng). Our results suggest that the Liv-ex 50 underperforms the six stock indexes, but provides diversification benefits in terms of volatility, asymmetry, and extreme events. (JEL Classifications: G110, G120, Q14)

Life insurers have historically relied upon investment markets as a key source of profit and crucially have been able to do this while embarking on relatively “vanilla” investment strategies. In the current low-yield environment, broadening their investment horizons is critical to maintaining profitability. This paper summarises some relevant external literature and the working party’s own research in understanding the potential benefits and pitfalls for insurers seeking to invest in non-traditional assets. The objective of this paper is to help educate and promote understanding by all (the many) relevant parties. In doing so, we hope to help organisations to achieve some further economic success for the ultimate benefit of society. Although this paper has primarily been written from the perspective of a life insurer, we hope it will be of interest to a much wider audience. Many of the asset classes considered here are relevant to general insurers, pension funds and the wider capital markets. It is very important to note that this paper does not contain investment advice and the analysis represents the views of the individuals and the working party and not the companies which they represent or the Profession. This paper does not make any comment as to the suitability (or otherwise) of specific investments for particular investors.