Effects of Stock Portfolio Diversification With Agricultural Futures Contracts
Fortenbery, Thomas Randall
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https://hdl.handle.net/2142/69887
Description
Title
Effects of Stock Portfolio Diversification With Agricultural Futures Contracts
Author(s)
Fortenbery, Thomas Randall
Issue Date
1988
Doctoral Committee Chair(s)
Hauser, Robert J.
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Abstract
This study examines the investment potential of agricultural futures contracts for a specific group of stock investors. The purpose is to identify a methodology which can be applied to any investment set to identify the effects of futures contracts on the risk and return characteristics of the investor's portfolio.
Two modeling techniques are considered: mean variance analysis (E-V) and dynamic programming (DP). E-V analysis is used to estimate E-V frontiers for investment sets including and excluding futures contracts. The risk and return characteristics of the optimal portfolios associated with frontiers including and excluding futures are compared in order to measure the investment potential of futures contracts. The DP model is used to determine what percentage of an investor's optimal investment portfolio should be comprised of futures contracts in a dynamic environment which allows the composition of the portfolio to change over time subject to transactions costs.
The results indicate that the E-V model used in this analysis is useful in measuring futures market investment potential, and that there are potential futures trading benefits for the group of investors considered. The DP model is less useful in its application here, but possible extensions to the model aimed at improving its usefulness are proposed.
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