Portfolios of Agricultural Market Advisory Services: How Much Diversification is Enough?
This study analyzes the potential risk-reduction gains from naÃ¯ve diversification among market advisory services for corn and soybeans. The total possible decrease in risk through naÃ¯ve diversification is small, mainly because advisory prices are highly correlated on average. Moreover, because marginal risk-reduction benefits decrease rapidly with size and the cost of holding the portfolios increases linearly due to servicesâ€™ subscription fees, it is optimal to limit portfolio size to a few advisory programs. Based on certainty equivalent measures and two representative risk-aversion levels, preferred portfolio sizes are between one and three programs.
Volume (Year): 37 (2005)
Issue (Month): 01 (April)
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