How to reduce the extreme risk of losses in corn and soybean markets? Construction of a portfolio with European stock indices

Dejan Živkov, Biljana Stankov, Nataša Papić-Blagojević, Jelena Damnjanović and Željko Račić
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Dejan Živkov: Department of Economics, Novi Sad School of Business, University of Novi Sad, Novi Sad, Serbia
Biljana Stankov: Department of Economics, Novi Sad School of Business, University of Novi Sad, Novi Sad, Serbia
Nataša Papić-Blagojević: Department of Economics, Novi Sad School of Business, University of Novi Sad, Novi Sad, Serbia
Jelena Damnjanović: Department of Economics, Novi Sad School of Business, University of Novi Sad, Novi Sad, Serbia
Željko Račić: Department of Economics, Novi Sad School of Business, University of Novi Sad, Novi Sad, Serbia

Agricultural Economics, 2023, vol. 69, issue 3, 109-118

Abstract: Because of the COVID-19 pandemic and the war in Ukraine, agricultural commodities had significant price increases, which inevitably implies high risk. In this article, we try to mitigate the extreme risk of corn and soybeans by constructing multivariate portfolios with developed and emerging European stock indices. We measured extreme risk via conditional value at risk. To address different goals that investors might prefer, we produced portfolios with the lowest risk and highest return-to-risk ratio. According to the results, corn and soybeans had relatively high portfolio shares. However, they are the riskiest assets because they have a very low pairwise correlation with the stock indices. Portfolios with emerging European indices had better risk-reducing results, considering both agricultural commodities because these indices are less risky than developed indices. In particular, the risk reductions of corn were 38% and 50% in the portfolios with developed and emerging stock indices, respectively, whereas, for soybeans, the results were 28% and 41%, respectively. In optimal portfolios, emerging European stock indices had the upper hand in most cases.

Keywords: agricultural commodities; portfolio optimisation; risk-minimising optimal portfolios (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:caa:jnlage:v:69:y:2023:i:3:id:371-2022-agricecon

DOI: 10.17221/371/2022-AGRICECON

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