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This article develops an econometric valuation methodology that is applied to identifying value in South African red wines. It is found that quality, as simultaneously measured by Wine magazine and Platter star ratings, is the dominant factor in explaining the cross‐section of prices. However, together with a varietal dummy these factors are only able to explain about 40% of the variation in wine prices. This implies that there is considerable value that may be gleaned through informed bargain seeking using this tool. Indeed, at certain levels of value there is more than a 50% differential in price.

Employing prespecified macroeconomic variables as potential priced factors, the Arbitrage Pricing Theory (APT) may be modelled as a non-linear seemingly unrelated regression with across equation restrictions. This portrayal allows for the simultaneous estimation of factor sensitivities and the risk premium associated with each factor. The following macroeconomic variables were tested as potential factors: unexpected movements in (rand) gold returns. (dollar) returns on the Dow-Jones Industrial Index, the term structure of interest rates and inflation expectations together with the 'residual market factor' of Burmeister Wall. Using iterated non-linear seemingly unrelated regression (ITNLSUR) estimation techniques, it was found that all of the above variables except for gold price risk are priced, that is, are associated with statistically significant risk premia.

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -Proceeding from the van Rensburg and Priilaid (''An econometric model for identifying value in South African red wine''valuation methodology mapping out the relationship between wine price and value, this paper seeks to explore the relationship between wine value and value-for-money. Design/methodology/approach -A series of regression models are developed from a database of some 537 South African red wines available during the 2004 period. Five cultivars are included here: cabernet, merlot pinotage, pinot noir, and shiraz. Findings -This research finds that successive increments in wine quality ratings are not equally priced. As a result, the relationship between value and price can be better modelled when increments in wine quality (as measured in stars) are proxied by dummy variables. Originality/value -Allowing for the possibility of the non-linear hedonic pricing of wine avoids the bias of value-for-money misleadingly being identified excessively at the bottom end of the quality spectrum and neglected at the top end.