TY - JOUR
T1 - Analytics for Wine Futures
T2 - Realistic Prices
AU - Hekimoğlu, Mert Hakan
AU - Kazaz, Burak
N1 - Funding Information:
The authors are grateful to Liv-ex executives James Miles, Neil Taylor, Sarah Philips, Theodora Moscalu, Andreas Neder, Giannis Kerestetzis for sharing data and for their continuous feedback throughout the project; Southern Glazers? Wine & Spirits executives Steven Becker and Steve Slater for their insights; the University of California Berkeley for their research support. The study benefited immensely from the feedback provided by Keisuke Hirano of Pennsylvania State University, Minjung Kwon of Syracuse University, and seminar participants at the University of Michigan, the University of California Berkeley, the University of California Davis, the Penn State University, the London Business School, the University of Miami, the Santa Clara University and the San Francisco State University.
Publisher Copyright:
© 2020 Production and Operations Management Society
PY - 2020/9/1
Y1 - 2020/9/1
N2 - Earlier publications indicate that the price of young wines cannot be estimated accurately through weather conditions. Considering that a majority of fine wine is sold in the form of wine futures, even before the wine is bottled, determining realistic prices for these wine futures accurately is one of the most critical decisions. Surveys of leading wine merchants and industry experts exhibit significant departures from the realized market prices. We develop a pricing model for fine wines using weather, market, and expert reviews. The financial exchange for fine wines called Liv-ex has already adopted our estimated prices and tagged them as “realistic prices.” Our approach combines temperature, rainfall, market fluctuations, and tasting expert scores and leads to accurate estimations that the wine industry has not seen before. Our study shows that higher temperatures, lower levels of precipitation, appreciation in the Liv-ex 100 index as a market indicator, and higher barrel scores increase market prices. We conduct a comprehensive set of robustness checks and show that the mean absolute deviation of actual market prices from our estimated prices is substantially smaller than any academic benchmark. Our realistic prices help create transparency in this highly opaque market. When compared with the realized prices, our realistic prices guide buyers (e.g., distributors, restaurateurs, merchants) in their purchase decisions as they can determine whether a wine is underpriced or overpriced.
AB - Earlier publications indicate that the price of young wines cannot be estimated accurately through weather conditions. Considering that a majority of fine wine is sold in the form of wine futures, even before the wine is bottled, determining realistic prices for these wine futures accurately is one of the most critical decisions. Surveys of leading wine merchants and industry experts exhibit significant departures from the realized market prices. We develop a pricing model for fine wines using weather, market, and expert reviews. The financial exchange for fine wines called Liv-ex has already adopted our estimated prices and tagged them as “realistic prices.” Our approach combines temperature, rainfall, market fluctuations, and tasting expert scores and leads to accurate estimations that the wine industry has not seen before. Our study shows that higher temperatures, lower levels of precipitation, appreciation in the Liv-ex 100 index as a market indicator, and higher barrel scores increase market prices. We conduct a comprehensive set of robustness checks and show that the mean absolute deviation of actual market prices from our estimated prices is substantially smaller than any academic benchmark. Our realistic prices help create transparency in this highly opaque market. When compared with the realized prices, our realistic prices guide buyers (e.g., distributors, restaurateurs, merchants) in their purchase decisions as they can determine whether a wine is underpriced or overpriced.
KW - Liv-ex 100
KW - barrel score
KW - price
KW - weather
KW - wine futures
UR - http://www.scopus.com/inward/record.url?scp=85087185103&partnerID=8YFLogxK
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U2 - 10.1111/poms.13193
DO - 10.1111/poms.13193
M3 - Article
AN - SCOPUS:85087185103
SN - 1059-1478
VL - 29
SP - 2096
EP - 2120
JO - Production and Operations Management
JF - Production and Operations Management
IS - 9
ER -