Auction-Price Dynamics for Fine Wines from Age-Period-Cohort Models

Joseph L. Breeden · Sisi Liang

9 citations0/0 files storedJournal of Wine Economics

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Art History and Market Analysis Wine Industry and Tourism Auction Theory and Applications

Abstract

Abstract In an attempt to expand the understanding of auction-price dynamics for fine wines, an age-period-cohort (APC) algorithm is applied to a database of 1.5 million auction results to quantify key drivers of these price dynamics. APC algorithms are designed to separate price appreciation with the age of the wine from overall wine-market conditions as well as to adjust for the unique value of specific vintages. In this context, the APC modeling provides a kind of Hedonic modeling, with specific controls regarding specification errors. The analysis was segmented by Château Lafite Rothschild, Bordeaux excluding Lafite, and Burgundy so that we could test specific events related to Château Lafite Rothschild. The results show price dynamics versus the ages of the wines and allow for the measurement of long-term price-appreciation potential. Environment functions versus auction dates quantify the “Lafite Bubble” and suggest past correlation to Chinese stock-market indices. An analysis of wine ratings versus price quantifies their nonlinear relationship. An analysis across nine auction houses shows a significant price spread for similar wines. (JEL Classifications: C23, D44, G11, G12, Q11)

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References

1993Common risk factors in the returns on stocks and bonds 1974Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition 1963A Regression Method for Real Estate Price Index Construction 1989How Auctions Work for Wine and Art 1983The Estimation of Age, Period and Cohort Effects for Vital Rates 2006Encyclopedia of Statistics in Behavioral Science 2008Predicting the Quality and Prices of Bordeaux Wine 2001Wine market prices and investment under uncertainty: an econometric model for Bordeaux Crus Classés

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