Monday, January 10, 2011

What explains Bordeaux wine prices?

What are the best predictors of Bordeaux wine prices?

According to the best academic research these are:

1.  Whether the wine maker rides a bicycle to work or drives a car.
2.  Whether his first name is Andre or Henri.
3.  Whether the vineyard faces SSE or NSE.

Just kidding!

According to Orley Ashenfelter at the American Association of Wine Economists, http://www.wine-economics.org/ (yes, Virginia, there is such a group - imagine their conventions!) and http://www.liquidasset.com/, Professor of Economics at Princeton University (yes, the very same Princeton University that once had Ben Bernanke as the Chair of its Economics Department, http://www.princeton.edu/economics/ and which still boasts of Paul Krugman (fellow blogger - albeit on weightier, less liquid issues, http://krugman.blogs.nytimes.com/ and 2008 winner of the Nobel Memorial Prize in Economic Science (never, ever to be confused with a real Nobel Prize)) the major variables that matter in predicting future prices of a toddling young Bordeaux are:

1.  The average temperature over the growing season (April - September) - the higher the better
2.  The amount of rain in August and September of the growing season - the less the better
3.  The amount of rain in the October to March preceding the vintage - the more the better

For readers who like pictures, here is one taken from AAWE Working Paper No. 4, Predicting the Quality and Prices of Bordeaux Wines, Orley Ashenfelter, April 2007:

So if you happen to find yourself holding a bottling of the 2010 Bordeaux, and the almanac tells you  it was rainy in Winter 2009 - 2010, and dry and hot during the Summer and early Fall of 2010, go ahead and empty out your IRAs and 401(k)s and put all those dollars into really liquid investments.

Meteorology is wine destiny.

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