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Investment Potential of Agricultural Futures Contracts
Author(s) -
Fortenbery T. Randall,
Hauser Robert J.
Publication year - 1990
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243042
Subject(s) - futures contract , portfolio , portfolio insurance , financial economics , economics , replicating portfolio , stock (firearms) , portfolio optimization , risk–return spectrum , investment (military) , rate of return on a portfolio , business , mechanical engineering , politics , law , engineering , political science
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.