The data were provided by Professor Orley Ashenfelter of Princeton University, publisher of Liquid Assets, a wine newsletter that provides current auction prices for wines and forecasts quality of new wine vintages. There are no prices for wines after 1989 because these wines are not yet mature. One of the goals of this exercise is to construct a method of forecasting the prices (or values) of these wines.

The weather variables for the Bordeaux region of France are some of the main determinants of the quality of wine. Harvest rainfall (HARVRAIN in mm) is important because if it rains too much during the harvest season then the wines will be too watery or too diluted.

The better vintages have dry harvest periods and are said to be more concentrated. Summer temperature (SUMTEMP in average degrees centigrade) is also important because the hotter weather is necessary for the grapes to fully ripen. Riper, sweeter fruit produces a better quality wine. Winter rainfall (WINTRAIN in mm) is important because wetter weather is good for the grape vines early in the growing season. The average temperature during the harvest season (SEPTEMP) is also included because some people suspect that wines that are "soft and easy drinking" are made when it was hot during the September when the grapes were being picked.

Age is also an important determinant of the price of wine. The reason for this is largely because the quality of wines improves with age. A typical wine might take 10 years to mature and continues to improve in quality beyond that point. Of course, it is also true that the price must be increasing with age, otherwise consumers would not buy wines when they were young (they could put their money in the bank instead and buy the wines when they were older).

A quick glance at the data reveals that 1961, 1953, and 1959 are among the hottest and driest years for Bordeaux wines, and also have the highest relative prices. Of course, these are also some of the older wines in our data.

Analyze the data in this spreadsheet (or in the Eviews workfile a425_case207.wf1), and answer the following questions:

1. Are the theoretical predictions about the effect of weather on wine quality supported by these data?

2. If you think about wine as an investment, is there any evidence that it pays to buy wine when it is young and store it, or should you spend your money on wine after it has matured?

3. Prof. Ashenfelter originally analyzed these data using the 1952-80 sample period and become so famous in wine circles that the New York Times wrote an extensive story about his equation in their weekend edition (see abstract below). Is there any evidence that the model for wine prices changes when you include the additional data from 1981-89?

4. Often wine connoisseurs do tastings of Bordeaux wines when they are still developing in large oak barrels and try to forecast what the wine will be like when it is drinkable. For example, Robert Parker has become famous because people have come to trust his skill at evaluating wines in this way. I have included Parker's ratings of the major Bordeaux regions for each year from 1970-2005 from his web page and then averaged them to create a vintage quality measure called "PARKER" in the spreadsheet. Do Parker's quality rankings help explain prices?

5. How would you create an index of quality for different vintages using only weather information? How does it compare with Parker's ratings?

6. How would you forecast prices from 1990-98?

Section 3
WINE TALK
By HOWARD G GOLDBERG

10/28/1987
New York Times Abstracts
Pg. 18, Col. 3
c. 1987 New York Times Company
Howard G Goldgerg Wine Talk column on Prof Orley Ashenfelter's newletter, Liquid Assets, which he says is devoted to 'wines that improve with age' and uses econometric methods in its judgments of vintages; photo

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