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Fads versus fundamentals in farmland prices: comment

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  • Maurice J. Roche

    () (Department of Economics, Finance and Accounting, National University of Ireland, Maynooth, Ireland)

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    Abstract

    A trivariate vector autoregression time series process, based on a present-value land price model, is used to decompose Iowa farmland prices into fundamental and non-fundamental components. A recent study, by Falk and Lee (1998), found that non-fundamental shocks are an important source of volatility in farmland prices and it was interpreted that these price movements were due to fads not speculative bubbles. We argue to the contrary and use a regime-switching model to provide evidence that supports a partially collapsing bubble story of the dynamics of Iowa farmland prices.

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    File URL: http://economics.nuim.ie/research/workingpapers/documents/N1070301.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1070301.

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    Length: 13 pages
    Date of creation: Mar 2001
    Date of revision:
    Handle: RePEc:may:mayecw:n1070301

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    Postal: Maynooth, Co. Kildare
    Phone: 353-1-7083728
    Fax: 353-1-7083934
    Web page: http://economics.nuim.ie
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    Related research

    Keywords: Vector autoregression; Regime-switching; Farmland prices; Bubbles;

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    References

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    1. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    2. Olivier J. Blanchard & Mark W. Watson, 1983. "Bubbles, Rational Expectations and Financial Markets," NBER Working Papers 0945, National Bureau of Economic Research, Inc.
    3. Barry Falk & Bong-Soo Lee, 1998. "Fads versus Fundamentals in Farmland Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 696-707.
    4. Flood, Robert P & Hodrick, Robert J, 1990. "On Testing for Speculative Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 85-101, Spring.
    5. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1991. "Speculative Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 529-46, May.
    6. Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-30, September.
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    Cited by:
    1. Turvey, Calum G., 2002. "Can Hysteresis And Real Options Explain The Farmland Valuation Puzzle?," Working Papers 34131, University of Guelph, Department of Food, Agricultural and Resource Economics.

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