RT Journal Article
SR Electronic
T1 Farmland Investment Characteristics from a Forward-Looking Perspective: An Explanation for the “High Return/Low Risk” Paradox
JF Land Economics
JO Land Econ
FD University of Wisconsin Press
SP 291
OP 303
DO 10.3368/le.96.2.291
VO 96
IS 2
A1 Feng, Xiaoguang
A1 Hayes, Dermot J.
YR 2020
UL http://le.uwpress.org/content/96/2/291.abstract
AB Land values and cash rents are slow to adjust, and therefore the returns from owning farmland may be time varying and serially correlated. This article investigates a farmland portfolio’s nominal and real returns from a forward-looking perspective, taking into account time-varying return and serial correlation. The results indicate that the attractive average return level observed historically can be attained only over a long investment period. The risk involved in the long investment period, however, is also substantial. As a result, in mixed-asset investment portfolios, the allocations to farmland are much lower than traditional mean-variance optimization implies. (JEL Q15)