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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- Good, Darrel L. & Martines-Filho, Joao Gomes & Irwin, Scott H., 2002. "The Pricing Performance Of Market Advisory Services In Corn And Soybeans Over 1995-2000," AgMAS Project Research Reports 14784, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
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- Webber, Rick L. & Irwin, Scott H. & Good, Darrel L. & Martines-Filho, Joao Gomes, 2003. "Evaluation Of Market Advisory Service Performance In Hogs," 2003 Conference, April 21-22, 2003, St. Louis, Missouri 18980, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
- Isengildina, Olga & Pennings, Joost M.E. & Irwin, Scott H. & Good, Darrel L., 2004. "Crop Farmers’ Use of Market Advisory Services," AgMAS Project Research Reports 37489, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
- Sharpe, William F., 1967. "Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 2(02), pages 76-84, June.
- Ron Bird & Mark Tippett, 1986. "Note---Naive Diversification and Portfolio Risk---A Note," Management Science, INFORMS, vol. 32(2), pages 244-251, February.
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