Portfolios of Agricultural Market Advisory Services: How Much Diversification is Enough?

This study analyzes the potential risk-reduction gains from naïve diversification among market advisory services for corn and soybeans. The total possible decrease in risk through naïve diversification is small, mainly because advisory prices are highly correlated on average. Moreover, because marginal risk-reduction benefits decrease rapidly with size and the cost of holding the portfolios increases linearly due to services’ subscription fees, it is optimal to limit portfolio size to a few advisory programs. Based on certainty equivalent measures and two representative risk-aversion levels, preferred portfolio sizes are between one and three programs.


Issue Date:
2005-04
Publication Type:
Journal Article
Record Identifier:
http://ageconsearch.umn.edu/record/43717
PURL Identifier:
http://purl.umn.edu/43717
Published in:
Journal of Agricultural and Applied Economics, Volume 37, Number 1
Page range:
101-114
Total Pages:
14
JEL Codes:
G11; Q10; Q12; Q14




 Record created 2017-04-01, last modified 2018-01-22

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