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Abstract
We conduct models and tests to ascertain whether there are speculative
bubbles and which factors contribute to the bubbles if there exits one. In
the model, we use the option value to represent the investment value of
farm real estate and compare the option value, calculated from dynamic
programming, with the actual farm real estate value to conclude whether
there is a speculative bubble. In the test, we use robust regression
analysis to ascertain the factors that contribute to the bubble. The result
shows that there are two major speculative bubbles from 1976 to 1983 and
2003 to 2011 in Iowa State with the Iowa State data from 1950 to 2011. The
factors contribute to the bubbles are corn price value, farm debt to asset
ratio, direct government payment, net farm income and its percentage
change, real farm value percentage change, urban land to total land ratio
and production cost.