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Adjusting the CAPM for Threshold Effects: An Application to Food and Agribusiness Stocks

Author

Listed:
  • Christine Wilson

    () (Department of Agricultural Economics, College of Agriculture, Purdue University)

  • Allen Featherstone

    () (Department of Agricultural Economics, Kansas State University)

Abstract

The dynamics in stock returns and the market return for 21 food and agribusiness firms are estimated in a threshold switching-regression framework. Threshold adjustment levels and capital asset pricing model risk parameters are estimated and tested. Results indicate risk parameters differ for alternative regimes and are not constant over time. Accounting for periods of temporary disequilibrium leads to notably more stable risk measurement estimates.

Suggested Citation

  • Christine Wilson & Allen Featherstone, 2006. "Adjusting the CAPM for Threshold Effects: An Application to Food and Agribusiness Stocks," Working Papers 06-08, Purdue University, College of Agriculture, Department of Agricultural Economics.
  • Handle: RePEc:pae:wpaper:06-08
    as

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    File URL: http://ageconsearch.umn.edu/bitstream/28619/1/sp060008.pdf
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    References listed on IDEAS

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    1. Jeffrey D. Vitale & John H. Sanders, 2005. "New markets and technological change for the traditional cereals in semiarid sub-Saharan Africa: the Malian case," Agricultural Economics, International Association of Agricultural Economists, vol. 32(2), pages 111-129, March.
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    3. Abdoulaye, T. & Lowenberg-DeBoer, J., 2000. "Intensification of Sahelian farming systems: evidence from Niger," Agricultural Systems, Elsevier, vol. 64(2), pages 67-81, May.
    4. Coulibaly, Ousmane & Vitale, Jeffrey D. & Sanders, John H., 1998. "Expected effects of devaluation on cereal production in the Sudanian Region of Mali," Agricultural Systems, Elsevier, vol. 57(4), pages 489-503, August.
    5. Michael T. Weber & John M. Staatz & Eric W. Crawford & Richard H. Bernsten & John S. Holtzman, 1988. "Informing Food Security Decisions in Africa: Empirical Analysis and Policy Dialogue," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(5), pages 1044-1052.
    6. Rohrbach, David D., 1989. "The Economics of Smallholder Maize Production in Zimbabwe: Implications for Food Security," Food Security International Development Papers 54060, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    7. Sanders, John H., 1989. "Agricultural research and cereal technology introduction in Burkina Faso and Niger," Agricultural Systems, Elsevier, vol. 30(2), pages 139-154.
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    Citations

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    Cited by:

    1. Kemp-Benedict, Eric, 2012. "The national bioenergy investment model: Technical documentation," MPRA Paper 37835, University Library of Munich, Germany.
    2. Korkmaz, Turhan & Cevik, Emrah Ismail & Birkan, Elif & Özataç, Nesrin, 2010. "Testing CAPM using Markov switching model: the case of coal firms," MPRA Paper 71479, University Library of Munich, Germany, revised 2010.

    More about this item

    Keywords

    CAPM; Cointegration; Risk; Threshold;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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