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Formally Testing the Present Value Model of Farmland Prices

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Author Info
Falk, Barry L.

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Abstract

This paper applies recent statistical developments in the study of stock-market price movements to study the plausibility of the constant expected returns version of the present value model as an explanation of farmland prices. Using Iowa farmland price and rent data over the 1921-86 sample period, formal test results indicate that, although farmland price and rent movements are highly correlated, price movements are not consistent with the implications of this model. There appear to be persistent predictable excess positive and/or negative returns in the Iowa farmland market.

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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11093.

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Date of creation: 03 Dec 2003
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Publication status: Published in American Journal of Agricultural Economics, February 1991, Vol. 73, No. 1, pp. 1-10.
Handle: RePEc:isu:genres:11093

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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  1. Du, Xiaodong & Hennessy, David A. & Edwards, William M., 2007. "Determinants of Iowa Cropland Cash Rental Rates: Testing Ricardian Rent Theory," Staff General Research Papers 12845, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  2. Jin, Zhong & Teahan, Brittany, 2009. "Iowa’s Tax Incentive Programs Used by Biofuel Producers Tax Credits Program Evaluation Study," MPRA Paper 14795, University Library of Munich, Germany. [Downloadable!]
  3. Salois, Matthew J. & Moss, Charles B., 2008. "Testing for Hyperbolic Discounting in a Panel of U.S. Agriculture," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6808, Southern Agricultural Economics Association. [Downloadable!]
  4. Katchova, Ani L. & Sherrick, Bruce J. & Barry, Peter J., 2002. "The Effects Of Risk On Farmland Values And Returns," 2002 Annual meeting, July 28-31, Long Beach, CA 19660, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  5. Turvey, Calum, 2002. "Can Hysteresis And Real Options Explain The Farmland Valuation Puzzle?," Working Papers 34131, University of Guelph, Department of Food, Agricultural and Resource Economics. [Downloadable!]
  6. Ahrendsen, Bruce L., 1993. "A Structural Approach To Estimating Rate Of Return Expectations Of Farmers," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 25(02), December. [Downloadable!]
  7. Onel, Gulcan, 2009. "Modeling Nonlinearities in Farmland Values: A Dynamic Panel Threshold Error-Correction Model," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49445, Agricultural and Applied Economics Association. [Downloadable!]
  8. Mishra, Ashok K. & Moss, Charles B. & Erickson, Kenneth W., 2004. "Effect Of Debt Solvency On Farmland Values: A Panel Cointegration Approach," 2004 Annual meeting, August 1-4, Denver, CO 20261, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  9. Gutierrez, Luciano & Erickson, Kenneth & Westerlund, Joakim, 2005. "The Present Value Model, Farmland Prices and Structural Breaks," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24702, European Association of Agricultural Economists. [Downloadable!]
  10. Saak, Alexander & Hennessy, David, 2001. "Location, Land Quality, And Rental Volatility," 2001 Annual meeting, August 5-8, Chicago, IL 20747, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  11. Barry FALK & Bong-Soo LEE, 1996. "Fads Versus Fundamentals In Farmland Prices," Staff Papers 281, Iowa State University Department of Economics. [Downloadable!]
  12. Sanchirico, James & Newell, Richard & Papps, Kerry, 2005. "Asset Pricing in Created Markets for Fishing Quotas," Discussion Papers dp-05-46, Resources For the Future. [Downloadable!]
  13. Binswanger, Hans P. & Deininger, Klaus & Feder, Gershon, 1993. "Power, distortions, revolt, and reform in agricultural land relations," Policy Research Working Paper Series 1164, The World Bank. [Downloadable!]
    Other versions:
  14. Juliano Junqueira Assunção, 2005. "Non-agricultural land use and land reform: theory and evidence from Brazil," Textos para discussão 496, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  15. Weerahewa, Jeevika & Meilke, Karl D. & Vyn, Richard J. & Haq, Zahoor, 2008. "The Determinants of Farmland Values in Canada," Working Papers 43461, Canadian Agricultural Trade Policy Research Network. [Downloadable!]
  16. Carlberg, Jared G., 2002. "Effects Of Ownership Restrictions On Farmland Values In Saskatchewan," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 34(02), August. [Downloadable!]
  17. Vercammen, James, 2003. "A Stochastic Dynamic Programming Model Of Direct Subsidy Payments And Agricultural Investment," Working Papers 15847, University of British Columbia, Food and Resource Economics. [Downloadable!]
  18. Hanson, Steven D., 1999. "A Simple Framework For Determining The Fundamental Agricultural-Use Value Of Michigan Farmland," Staff Papers 11641, Michigan State University, Department of Agricultural, Food, and Resource Economics. [Downloadable!]
  19. Claassen, Roger & Tegene, Abebayehu, 1999. "Agricultural Land Use Choice: A Discrete Choice Approach," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 28(1), April. [Downloadable!]
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