Macroeconomic Determinants of Wine Prices Linda Jiao Juin 2016, Bordeaux

Fine wine price is sensitively related to economic dynamics Macroeconomic determinants Financial markets Wine markets Late - Wine assets are not having much liquidity Immediate Wealth effect Cash effect Volatility transmission

Objective: identify macroeconomic determinants of wine prices Extend the study of Cevik and Sedik (2014) With new variables on a longer monthly database from 1996 to 2015 GDP-G4 and GDP-BRIC - measure of demand Global wine production and consumption Broad money M3-G4 – wine assets are middle-long term engagement Real effective exchange rate of Dollar – influence via demand Real interest rate US – discount factor, speculation, alternative assets Investment fund as percentage of GDP US – measure of financialization Time dummy variables – capture additional information Breakpoint 2004M01 – activation of financialization of fine wine market

Data – Liv-ex Fine Wine Investables Index Macroeconomic data from OECD Statistics Wine production and consumption data from OIV most financialized Bordeaux fine wines

Model and analysis process Variables are estimated in two econometric models to avoid the potential correlation problem among explanatory variables. Real dollar term; logarithms; all variables are stationary. Ordinary Least Squares Method and Generalized Method of Moments (Cevik and Sedik, 2014) - J-statistic: over-identifying restrictions are satisfied. Newey-West estimator is used to address residual heteroscedaticity-autocorrelation issue.

Dummy variables confirm the negative effects in 2008, 2011, and China-led boom 2009-2010. Absorbed the impact of consumption

Robustness check – Liv-ex Fine Wine 1000 Index FW1000 Includes the fine wines from Bordeaux, Burgundy, Champagne, Rhone, Italy and Rest of the World. Confirm previous results, except the influence from emerging markets is much less significant  Impact of emerging markets is limited for the wines from other regions outside of Bordeaux. Bordeaux Multi-region

Conclusion - key points We empirically identified the macroeconomic determinants of fine wine prices on a monthly database from 1996 to 2015. Demand from emerging markets played a key factor on fine wine pricing, more precisely, on the fluctuation of Bordeaux fine wine prices. Continuous weakening of US Dollar in real term has favored the fine wine prices. Since 2011, the slowdown of economic growth in emerging markets followed by the depreciation of national currencies has engendered negative impacts on fine wine markets. With the process of financialization in fine wine market, factors such as money supply, real interest rate and the growth of investment fund started to show their influences on fine wine prices. Back to the level before China-led boom. 2016 is a new start.