As the market for fine-wine investing matures, basic questions of portfolio strategy remain unexplored. I evaluate how adding fine wine from the superstar châteaux of Bordeaux's Right Bank might complement the traditional focus on the five first-growths of Bordeaux's Left Bank. Fundamentals for the Right Bank's superstars are attractive: they produce roughly an order of magnitude less, face different production conditions, and receive equally impressive critical reviews. However, they receive far less attention than their Left Bank counterparts. To examine returns over the long run, I hand-collected 10,885 prices for eight wines from an archive of 391 Sherry-Lehmann catalogs, a New York City retailer, which began at the end of Prohibition. Using these historical price records, I compare the real returns from investing in the five Premier Cru to a portfolio that adds three superstar châteaux from the Right Bank: Ausone, Cheval Blanc, and Petrus. I find the geometric-average annual return was 6.78% in real terms from 1938 to 2017 for the joint portfolio, less than 0.01% different, but with better risk-reward as measured by the Sharpe ratio. Additionally, I find the life cycle of aging is substantially different across the two Banks, which could provide further diversification benefits for the strategic investor.

This paper investigates the relative importance of various attributes, including varietal, brands, and geographic origin, in explaining retail wine prices for the United States market. We use a metric based on the Shapely value, from cooperative game theory, in the context of an empirical hedonic price equation estimated using a large sample of retail wine sales for home consumption over the period 2007–2019. We find that brands alone explain more than 70% of the variation in wine prices, but geographic origin and varietals retain additional explanatory power. Furthermore, information about the geographic origin appears to be a considerably more important attribute than varietals.

A vast body of literature exists on estimating hedonic price functions, which relate the price of wine to its attributes. Some existing literature has employed producer-specific variables such as quantity sold and producer reputation in hedonic functions to potentially capture supply influences on prices. This practice is inconsistent with the original Rosen (1974) hedonic theoretic foundation. To overcome this deficiency, we extend the literature by using the Rosen two-stage approach, employing data from multi-markets for similar wines to estimate inverse supply functions. The application to Australian produced wines sold in different countries demonstrates the importance of a wine's quality and age as attributes in inverse supply functions. Results imply the additional costs of producing better quality and older wines are increased as both quality and age are increased. Estimates also suggest that lower marginal costs for attributes are associated with a smaller producer size and older more established producers. (JEL Classifications: C21, Q11)

Information conveyed on the price tag or label of a consumable packaged good is widely thought to change the consumer's sensory experience of consuming the good. Can the positive “placebo” effects of high prices and negative “nocebo” effects of low prices on consumer experience be isolated and observed in a controlled experiment without using deception? In a pilot wine experiment using a method I call “half-blind tasting,” I observe that the nocebo response to a $5 price tag is stronger than the placebo response to a $50 price tag. To interpret these preliminary results, I borrow some insights from prospect theory. (JEL Classifications: C91, D81, L66, M31, Q11)

Wine consumers and producers make decisions partly on ratings of wine critics. Research into reliability (correspondence of repeated ratings of the same wines by one critic) and consensus (correspondence of ratings between critics or competitions) have yielded low estimates. However, Ashton (2013), looking at the consensus among only prominent critics of red Bordeaux, vintages 2004–2010, found a correlation of around 0.60. Here, I revisit these data, and extend the analyses to the years 2011–2016 for the same wines, but with additional new critics. Agreement among the critics (r = 0.57) of these new years is comparable to those found by Ashton (r = 0.60), with a slight upward trend. Overall, critics agree more about what they do not like. Regarding prices and ratings, wines score below-average ratings when they cost less than 35 euro, and higher ratings between 35 and 100 euro. In wines more than 100 euro there is no correlation between ratings and price. (JEL Classification: C99)

This study examines a framework developed by Cardebat, Figuet, and Paroissien in a 2014 Journal of Wine Economics article for identifying the impacts of both objective and subjective quality on wine prices. We recognize how various specifications are observationally equivalent and that the interpretation of model estimates depends crucially on the posited assumption for the relation between price and objective and subjective quality. The proposed framework is applied to Australian premium wines. Results indicate that the price impact of expert personal opinions is similar to the impact of objective quality as estimated via weather, vintage, and producer fixed effects. The relative importance of objective quality compared with subjective quality depends crucially on the ability of expert scores to accurately reflect objective quality. (JEL Classifications: C21, Q11, Q54)

In the context of the important implications of climate change, this paper analyzes the impact of weather on wine quality and prices for Australian premium wines. Motivated by a recognition of consumers’ accessed information sets, the impact of temperature and rainfall on retail wine prices is assessed through their relation with quality ratings from a high-profile wine guide and then on prices. For a broad spectrum of different quality wines from a cross section of wines available in 2014 and a separate analysis of eight wine varieties, the indirect approach to modeling weather effects through wine quality is found to be superior than assuming weather impacts directly on retail prices. The results also demonstrate the importance of regional variations in weather conditions in influencing prices and identify the optimal season growing temperatures for different grape varieties. (JEL Classifications: Q13, Q54)

This paper conducts a meta-analysis of price and income elasticities for wine and distilled spirits, which correct for outliers and publication bias. The sample of wine elasticities is obtained from 104 primary studies, and the sample of spirits elasticities is obtained from 111 primary studies. Robust weighted-means and meta-regressions are reported that correct for outliers, heterogeneity, heteroskedasticity, dependence, and publication bias. Compared to unweighted averages previously reported in the literature, the analysis yields less-elastic demands for both price and income. Average price elasticities obtained using cumulative meta-analysis are −0.45 for wine and −0.55 for spirits. Average income elasticities are 1.0 for both beverages. Bias due to publication selectivity is important. Country-level differences also are noted for both wine and spirits. Policy implications are discussed for pricing and taxation of alcohol beverages. (JEL Classifications: Q11, C18, I12)

This paper investigates reversals in wine auction prices following a series of strong positive and negative returns. Using the Chicago Wine Company's auction data, we find evidence of reversals after extreme wine price changes. There is a clear asymmetry in the market reaction to wine price increases and declines. Wine price declines after strong price increases are not, in general, as significant as wine price increases after strong price declines. The strongest reversal occurs for wines that have declined in price by more than 30 percent. (JEL Classifications: D44, G14)