Prices of French Icon Wines and the Business Cycle: Empirical Evidence from Danish Wine Auctions

During the last decades auctions of selected wines have regularly taken place in Denmark. Therefore, by now, a considerable amount of data exists for auction wine prices, i.e. both the assessed wine prices of the auctioneer and the eventual price at which the wines are sold. From these data the prices of the most famous French icon wines (Premier Cru Classé) are extracted and a coherent time series data set is constructed. As the auctions have taken place several times each year, the data are analysed at a quarterly frequency. Having obtained the time series data for the price development of icon wines, these are expected to be influenced by a lot of factors, of course, but the income development as reflected in the business cycle fluctuations is considered to be of utmost importance. The wine auction prices are obviously exogenous to the business cycle, and thus eventual questions of causality are easier tested than usually done with many economic variables. Hence, the empirical part of the paper analyses the co-movements in the wine prices and the business cycle, the latter represented by several indicators in order to address the question of whether the wine auctions are affected by the general economic development or not. The major conclusions seem to be that the auctioneers valuation of icon wines may follow the international prices of these goods - and the prices of substitutes as represented by the stock market index - but in contrast to this, in recent years the actual hammer prices are stagnating and deviating from the path of the wine price valuations.