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The role of an agribusiness index in a modern portfolio

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Author Info

  • Benjamin M. Clark
  • Joshua D. Detre
  • Jeremy D'Antoni
  • Hector Zapata

Abstract

Purpose – The purpose of this research is to develop a composite agribusiness stock index and then compare the returns and volatility to other broad-based market indices. The paper then evaluates the diversification potential of agribusiness stocks in the context of an investment portfolio. Design/methodology/approach – This agribusiness index (AGB Index) is market-capitalization weighted. Only firms traded on the NYSE, AMEX, or NASDAQ and meeting ERS SIC classification for industries related to agriculture are included in the index. The paper then uses standard financial metrics to measure the historical risk, return, and correlation. Findings – Until recent years, the AGB Index has historically exhibited lower returns than the market indices. The AGB Index has also exhibited lower risk and correlation with treasury securities than broad market indices. Practical implications – In recent years, portfolio managers and large investors have invested considerably in asset classes like farmland for stable returns, an inflation hedge, and diversification tool. This agribusiness index may further this trend and lead to the development of an alternative Exchange Traded Fund (ETF). This product would make investment in agriculture possible for virtually all investors. Originality/value – Despite increasing popularity, very little research exists on the performance of agricultural stocks in an investment portfolio. This study develops a large-cap agribusiness stock price index to help fill this void in the literature.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

Volume (Year): 72 (2012)
Issue (Month): 3 (September)
Pages: 362-380

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Handle: RePEc:eme:afrpps:v:72:y:2012:i:3:p:362-380

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Web page: http://www.emeraldinsight.com

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Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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Web: http://www.emeraldinsight.com/afr.htm

Related research

Keywords: Agriculture; Investing; Portfolios; Publicly traded agribusinesses; Stock market indices; Stock markets;

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Citations

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Cited by:
  1. Katchova, Ani L. & Enlow, Sierra J., 2013. "Financial Performance of Publicly-Traded Agribusinesses," Staff Papers 164518, University of Kentucky, Department of Agricultural Economics.
  2. Chen, Songjiao & Wilson, William W. & Larsen, Ryan A. & Dahl, Bruce L., 2013. "Investing in Agriculture as an Asset Class," Agribusiness & Applied Economics Report 147053, North Dakota State University, Department of Agribusiness and Applied Economics.
  3. D'Antoni, Jeremy M. & Detre, Joshua D., 2013. "Determining the Nature of Dependency between Agribusiness and Non-Agribusiness Stocks," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 143080, Southern Agricultural Economics Association.

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