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

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  • Breeden, Joseph L.
  • Liang, Sisi

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)

Suggested Citation

  • Breeden, Joseph L. & Liang, Sisi, 2017. "Auction-Price Dynamics for Fine Wines from Age-Period-Cohort Models," Journal of Wine Economics, Cambridge University Press, vol. 12(2), pages 173-202, May.
    • Handle: RePEc:cup:jwecon:v:12:y:2017:i:02:p:173-202_00
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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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