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Investing in Agriculture as an Asset Class

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Author Info

  • Chen, Songjiao
  • Wilson, William W.
  • Larsen, Ryan A.
  • Dahl, Bruce L.
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    Abstract

    There has been massive investment in agricultural assets including farmland, handling and trading, technology, fertilizer, and others. Studies about investing in farmlands have been extensive, but have limited focus on investing IN non-farmland agricultural assets. This paper analyzes the role of farmland and other agricultural investments in class-specific portfolios. We use the Copula-VaR and Copula-VaR with restrictions methods to find, compare, and contrast the optimal portfolio compositions among US farmlands, classified agricultural equities, and grain futures. The results illustrate that farmland is attractive as an investment. However, as risk tolerance is increased, a shift to other agricultural assets would potentially bring higher returns.

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    File URL: http://purl.umn.edu/147053
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    Bibliographic Info

    Paper provided by North Dakota State University, Department of Agribusiness and Applied Economics in its series Agribusiness & Applied Economics Report with number 147053.

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    Date of creation: Mar 2013
    Date of revision:
    Handle: RePEc:ags:nddaae:147053

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    Related research

    Keywords: Agricultural Finance; Farm Management; Financial Economics; Land Economics/Use;

    This paper has been announced in the following NEP Reports:

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    1. Alexander, Gordon J. & Baptista, Alexandre M. & Yan, Shu, 2007. "Mean-variance portfolio selection with `at-risk' constraints and discrete distributions," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3761-3781, December.
    2. Alexander, S. & Coleman, T.F. & Li, Y., 2006. "Minimizing CVaR and VaR for a portfolio of derivatives," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 583-605, February.
    3. Robert T. Clemen & Terence Reilly, 1999. "Correlations and Copulas for Decision and Risk Analysis," Management Science, INFORMS, vol. 45(2), pages 208-224, February.
    4. Weninger, Quinn & Just, Richard E., 1999. "Are Crop Yields Normally Distributed?," Staff General Research Papers 5064, Iowa State University, Department of Economics.
    5. Benjamin M. Clark & Joshua D. Detre & Jeremy D'Antoni & Hector Zapata, 2012. "The role of an agribusiness index in a modern portfolio," Agricultural Finance Review, Emerald Group Publishing, vol. 72(3), pages 362-380, September.
    6. Mark R. Manfredo & Raymond M. Leuthold, 2001. "Market risk and the cattle feeding margin: An application of Value-at-Risk," Agribusiness, John Wiley & Sons, Ltd., vol. 17(3), pages 333-353.
    7. Thierry Roncalli & Gael Riboulet & Ashkan Nikeghbali & Vado Durrleman & Erick Bouy?, 2001. "Copulas: an Open Field for Risk Management," Working Papers wp01-01, Warwick Business School, Finance Group.
    8. Buch, A. & Dorfleitner, G., 2008. "Coherent risk measures, coherent capital allocations and the gradient allocation principle," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 235-242, February.
    9. Alexander, Gordon J. & Baptista, Alexandre M., 2002. "Economic implications of using a mean-VaR model for portfolio selection: A comparison with mean-variance analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1159-1193, July.
    10. Wei Sun & Svetlozar Rachev & Frank Fabozzi & Petko Kalev, 2009. "A new approach to modeling co-movement of international equity markets: evidence of unconditional copula-based simulation of tail dependence," Empirical Economics, Springer, vol. 36(1), pages 201-229, February.
    11. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
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