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

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)

On Fine Wine Pricing across Different Trading Venues

“…Although all wine producers under consideration in this study belong to the same reputation class (Bordeaux's First Growth), differences in traders' preferences and attitudes towards the brand may translate into differences in wine prices. In extreme cases, unchecked exuberance in trader behavior may drive a rapid escalation in prices, ultimately leading to speculative bubbles, as was the case for Lafite Rothschild wines between 2009 and 2012 (Breeden and Liang, 2017;Tolhurst, 2019).…”

On the Constancy of Hedonic Wine Price Coefficients over Time

“… 6 According to previous studies, Hong Kong transactions from 2007 to 2014 and transactions of Lafite Rothschild from 2000 are considered speculative (see Cardebat et al (2017), Masset et al (2016), and Breeden and Liang, 2017)). We remove these transactions in Panel B.…”

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