A Description of Farmland Investor Expectations

Abebayehu Tegene and Frederick R Kuchler

The Journal of Real Estate Finance and Economics, 1991, vol. 4, issue 3, 283-96

Abstract: We consider how best to characterize agricultural real estate market participants' expectation formation mechanism. The expectation formation mechanism links current agricultural policies to asset prices and tells us how current policies change expectations for future transfers. We examine behavior of real estate prices and returns using the present value model. We derive estimable equations incorporating two rival expectation formation mechanisms: rational and adaptive expectations. Assuming rational expectations, the present value model yields parameter estimates that imply the model should be rejected. Instead of rejecting the present value model while maintaining the rational expectation hypothesis, we let the data reveal which expectations hypothesis best fits this data. When we assume the rival hypothesis, the model yields parameter estimates that conform to adaptive expectation. Copyright 1991 by Kluwer Academic Publishers

Date: 1991
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