Forecasting Bordeaux wine prices using state-space methods

Stephen Bazen (1, 2) , Jean-Marie Cardebat (3)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 AMSE - Aix-Marseille Sciences Economiques
3 Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales

Generic Bordeaux red wine (basic claret) can be regarded as being similar to an agricultural commodity. Production volumes are substantial, they are traded at high frequency and the quality of the product is relatively homogeneous. Unlike other commodities and the top-end wines (which represent only 3% of the traded volume), there is no futures market for generic Bordeaux wine. Reliable forecasts of prices can to large extent replace this information deficiency and improve the functioning of the market. We use state-space methods with monthly data to obtain a univariate forecasting model for the average price. The estimates highlight the stochastic trend and the seasonality present in the evolution of the price over the period 1999 to 2016. The model predicts the path of wine prices out of sample reasonably well, suggesting that this approach is useful for making reasonably accurate forecasts of future price movements.

Mots clés: forecasting; Wine prices; state-space methods; forecasting JEL CLASSIFICATION C53; L66; Q11

Domaines: Economies et finances; Économie et finance quantitative [q-fin]

Stephen Bazen, Jean-Marie Cardebat. Forecasting Bordeaux wine prices using state-space methods. Applied Economics, 2018, 50 (47), pp.5110 - 5121. ⟨10.1080/00036846.2018.1472740⟩. ⟨hal-01867216⟩