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The Role of Agribusiness Assets in Investment Portfolios

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  • Johnson, Michael
  • Malcolm, Bill
  • O'Connor, Ian
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    Abstract

    Investment in agribusiness assets has grown significantly in recent years. The question of interest is whether including agribusiness assets in investment portfolios provide benefits. The effects of diversification by including agribusiness assets in two investment portfolios, a mixed asset portfolio and a diversified share portfolio was investigated using Markowitz’s (1952) Modern Portfolio Theory (MPT) of mean-variance optimization. To measure the performance of agribusiness assets, an index of agribusiness companies listed on the Australian Stock Exchange was used. The results of the study suggested that agribusiness assets provided some diversification benefits in both the mixed asset and diversified share portfolio. The benefits of including agribusiness assets in a mixed asset portfolio were shown to be more significant than in a diversified share portfolio. Allocations of agribusiness assets in the portfolios tended to increase with portfolio risk, up to a peak of 32.10% agribusiness assets in the mixed asset portfolio, with allocations tending to decrease with increasing risk in the diversified share portfolio, peaking at a 17.72% allocation in the minimum risk portfolio. For both the portfolios analysed, agribusiness assets entered efficient portfolios at the minimum risk portfolio.

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    File URL: http://purl.umn.edu/126096
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    Bibliographic Info

    Article provided by University of Melbourne, Melbourne School of Land and Environment in its journal Australasian Agribusiness Review.

    Volume (Year): 14 (2006)
    Issue (Month): ()
    Pages:

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    Handle: RePEc:ags:auagre:126096

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    Web page: http://www.agrifood.info/review/

    Related research

    Keywords: Agribusiness assets; investment portfolios; mixed asset portfolio; diversified share portfolio; Markowitz's Modern Portfolio Theory; mean variance optimization; MPT; Australian Stock Exchange; ASX; Agribusiness; Agricultural Finance; Farm Management; Production Economics; Research Methods/ Statistical Methods; Teaching/Communication/Extension/Profession; ISSN 1442-6951;

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    1. Kroll, Yoram & Levy, Haim & Markowitz, Harry M, 1984. " Mean-Variance versus Direct Utility Maximization," Journal of Finance, American Finance Association, vol. 39(1), pages 47-61, March.
    2. Levy, H & Markowtiz, H M, 1979. "Approximating Expected Utility by a Function of Mean and Variance," American Economic Review, American Economic Association, vol. 69(3), pages 308-17, June.
    3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
    4. David A. Lins & Bruce J. Sherrick & Aravind Venigalla, 1992. "Institutional Portfolios: Diversification through Farmland Investment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 549-571.
    5. Nicholas Barberis & Andrei Shleifer, 2000. "Style Investing," NBER Working Papers 8039, National Bureau of Economic Research, Inc.
    6. James R. Webb & Jack H. Rubens, 1988. "The Effect of Alternative Return Measures on Restricted Mixed-Asset Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(2), pages 123-137.
    7. Hardin, William G, III & Cheng, Ping, 2002. "Farmland Investment under Conditions of Certainty and Uncertainty," The Journal of Real Estate Finance and Economics, Springer, vol. 25(1), pages 81-98, July.
    8. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242.
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