Investment potential of agricultural futures contracts

T. Randall Fortenbery, Robert J. Hauser

Research output: Contribution to journalArticlepeer-review

Abstract

Investment benefits from trading live cattle, hog, corn, and soybean futures contracts are considered under the assumption that the investor’s risk/return evaluation is relative to a highly diversified stock portfolio. A mean-variance approach is used to find the “optimal” mix of investments for the initial stock portfolio and for portfolios which may include both stocks and futures. The addition of futures contracts to the portfolio rarely increases the portfolio return. This finding is consistent with risk-premium results of previous studies. However, investment benefits from agricultural futures are found in the form of a reduction in the portfolio’s nonsystematic risk.

Original languageEnglish (US)
Pages (from-to)721-726
Number of pages6
JournalAmerican Journal of Agricultural Economics
Volume72
Issue number3
DOIs
StatePublished - Aug 1990

Keywords

  • Futures contracts
  • Investment
  • Mean-variance analysis
  • Risk premium

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

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