Is Farmland a Common Risk Factor in Asset Pricing Models?

Ashraf Noumir and Michael Langemeier

Journal of Real Estate Portfolio Management, 2022, vol. 28, issue 2, 153-165

Abstract: Farmland represents the largest share of the U.S. agricultural balance sheet, accounting for nearly 80% of U.S. farm assets. Motivated by the well-documented real estate risk factor and the similarities between farmland and real estate investing, this paper examines whether farmland has a risk factor, like real estate, that is affecting asset returns. The proposed farmland risk factor is proxied by the National Council of Real Estate Investment Fiduciaries farmland property index (Farmland NCREIF). Relying on quarterly data from 1991-Q1 to 2016-Q2, we employed the Generalized Method of Moments (GMM) to provide empirical evidence that even though farmland exhibits diversification benefits, it fails to be a risk factor. Instead, market frictions and/or non-risk explanations might provide a more plausible description of farmland’s high risk-adjusted return.

Date: 2022
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DOI: 10.1080/10835547.2022.2091089

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