The Price of Wine
AbstractWe examine the impact of aging on wine prices and the performance of wine as a long-term investment, using a unique historical database for five long-established Bordeaux wines that we construct from auction and dealer prices. We estimate the life-cycle price patterns with a regression model that avoids multicollinearity between age, vintage year, and time by replacing the vintage effects with annual data on production yields and weather quality. In line with the predictions of an illustrative model, we observe the highest rates of appreciation for young high-quality wines that are still maturing. The findings suggest that the non-financial “psychic return” to holding wines that are substantially beyond maturity is at least 1%. Using an arithmetic repeat-sales regression, we estimate an annualized return to wine investments (net of insurance and storage costs) of 4.1%, in real GBP terms, between 1900 and 2012. Wine underperforms equities over this period, but outperforms government bonds, art, and stamps. Wine and equity returns are positively correlated.
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Bibliographic InfoPaper provided by HEC Paris in its series Les Cahiers de Recherche with number 1019.
Length: 42 pages
Date of creation: 10 Dec 2013
Date of revision:
alternative investments; luxury goods; price indexes; psychic return; consumption; storage;
Other versions of this item:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D44 - Microeconomics - - Market Structure and Pricing - - - 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
- Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature
This paper has been announced in the following NEP Reports:
- NEP-AGR-2013-12-15 (Agricultural Economics)
- NEP-ALL-2013-12-15 (All new papers)
- NEP-CUL-2013-12-15 (Cultural Economics)
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