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On Pricing Unconventional Prepaid Forward Contracts: Evidence from en primeur Fine Wine

Published online by Cambridge University Press:  13 November 2019

Marcin Czupryna
Affiliation:
Cracow University of Economics, Rakowicka 27, 31-510Cracow, Poland; e-mail: czuprynm@uek.krakow.pl.
Michał Jakubczyk
Affiliation:
SGH Warsaw School of Economics, Al. Niepodległości 162, 02-554Warsaw, Poland; e-mail: michal.jakubczyk@sgh.waw.pl.
Paweł Oleksy
Affiliation:
Cracow University of Economics, Rakowicka 27, 31-510Cracow, Poland.

Abstract

An en primeur agreement is an unconventional forward contract. In this article, we provide a new conceptual framework for analyzing the properties of en primeur prices based on the cost of carry approach. The results, based upon Bayesian modeling, indicate that the cost of carry increases up to 0.9598 when en primeur and bottled wines are traded in parallel. Moreover, our findings confirm that price dispersion around the mean value is greater for en primeur wines (22.42%) than for standard bottled wines (8.2%) traded after the sale of en primeur wines has ended. (JEL Classifications: G12, G15, L66, Q02)

Type
Articles
Copyright
Copyright © American Association of Wine Economists 2019

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Footnotes

We are grateful to Liv-ex Ltd. for providing access to the data. We also thank the attendees of the 2018 Derivative Markets Conference held in Auckland and the 2019 American Association of Wine Economics Annual Meeting held in Vienna, Karl Storchmann, and an anonymous referee for their valuable comments. All remaining errors are the responsibility of the authors. This research was supported by the National Science Centre of Poland (grant no. 2015/17/B/HS4/02708) and by the Ministry of Science and Higher Education within “Regional Initiative of Excellence” Programme for 2019–2022 (grant no. 021/RID/2018/19).

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