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Making a Markowitz portfolio with agricultural commodity futures

Author

Listed:
  • Dejan Živkov

    (Novi Sad School of Business, University of Novi Sad, Novi Sad, Serbia)

  • Suzana Balaban

    (Faculty of Finances, Banking and Audit, Alfa University, Beograd, Serbia)

  • Marijana Joksimović

    (Faculty of Finances, Banking and Audit, Alfa University, Beograd, Serbia)

Abstract

This paper constructs a minimum-variance portfolio of six agricultural futures. We make a full sample analysis as well as a pre-COVID and COVID examination. Using Markowitz portfolio optimisation, we find that soybean futures have the highest share (31%) in the full sample portfolio because it has the lowest variance. Both soybean oil and rice futures have the second highest weight in the full sample portfolio, in an amount of 24%, because soybean oil has the second lowest variance, whereas rice has, by far, the lowest average correlation with other agricultural futures. Soybean oil has the highest share of 35% in the pre-COVID period, whereas rice follows with 27%. On the other hand, in the COVID period, soybean has a very high share in an amount of 47% due to the lowest risk, while rice takes second place with 19%. Based on the results, investors should invest the most in soybean oil and rice in tranquil periods, while the choice should be soybean and rice in crisis periods. Rice is the choice in both sub-periods because rice has a very low correlation with other agricultural commodities, which happens due to the price stabilisation of rice that is often conducted by Asian countries.

Suggested Citation

  • Dejan Živkov & Suzana Balaban & Marijana Joksimović, 2022. "Making a Markowitz portfolio with agricultural commodity futures," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(6), pages 219-229.
    • Handle: RePEc:caa:jnlage:v:68:y:2022:i:6:id:78-2022-agricecon
    DOI: 10.17221/78/2022-AGRICECON
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    1. Pérez-Mesa, Juan Carlos & Pérez-Mesa, Fº Javier & Tapia-León, Juan José & Valera-Martínez, Diego, 2022. "Scheduling vegetable sales to supermarkets in Europe: The tomato case," MPRA Paper 119883, University Library of Munich, Germany.
    2. Juan Carlos Pérez-Mesa & Francisco Javier Pérez-Mesa & Juan José Tapia-León & Diego Luis Valera, 2022. "Scheduling vegetable sales to supermarkets in Europe: The tomato case," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(11), pages 403-412.

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