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Farmland Investment Under Conditions of Certainty and Uncertainty

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Abstract

This study investigates the potential for farmland to improve mixed-asset portfolio efficiency. Three major conclusions are drawn from the research. First, in a world with certainty, farmland can be shown to statistically improve mixed-asset portfolio efficiency. Second, with the introduction of uncertainty into the portfolio allocation model, investors can justify small or no allocations of farmland in a mixed-asset portfolio, although it appears that even with uncertainty prudent investors should evaluate the asset class. Third, with respect to farmland investment and geographic diversification, the results question the ability of an optimized mean–variance portfolio to provide substantial improvement in comparison to a naïve portfolio. The marginal improvement in portfolio efficiency of an optimized farmland portfolio versus a naïve farmland portfolio is not statistically significant.

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Authors and Affiliations

  1. Department of Finance and Economics, Mississippi State University, P.O. Box 9580, Mississippi State, MS, 39762, USA

    William G. Hardin III

  2. Perdue College of Business, Salisbury State University, Salisbury, MD, 21801, USA

    Ping Cheng

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  1. William G. Hardin III
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  2. Ping Cheng
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Hardin, W.G., Cheng, P. Farmland Investment Under Conditions of Certainty and Uncertainty. The Journal of Real Estate Finance and Economics 25, 81–98 (2002). https://doi.org/10.1023/A:1015376818630

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