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Measuring Price Risk on UK Arable Farms

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  • Ben White
  • P. J. Dawson

Abstract

Price risk is estimated for a representative UK arable farm using value‐at‐risk (VaR). To determine the distribution of commodity returns, two multivariate generalised autoregressive conditional heteroscedasticity (GARCH) models, with t‐distributed and normally distributed errors, and a RiskMetricsTM model are estimated. Returns show excess kurtosis and that the GARCH model with t‐distributed errors fits best. Estimates of VaR differ between models: both GARCH models perform well but the RiskMetricsTM model underestimates expected losses. UK arable farms face substantial price risk.

Suggested Citation

  • Ben White & P. J. Dawson, 2005. "Measuring Price Risk on UK Arable Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 56(2), pages 239-252, July.
    • Handle: RePEc:bla:jageco:v:56:y:2005:i:2:p:239-252
    DOI: 10.1111/j.1477-9552.2005.00002.x
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    Cited by:

    1. Jules Sadefo Kamdem, 2012. "VaR and ES for linear portfolios with mixture of generalized Laplace distributions risk factors," Annals of Finance, Springer, vol. 8(1), pages 123-150, February.
    2. Heidelbach, Olaf, 2007. "Efficiency of selected risk management instruments: An empirical analysis of risk reduction in Kazakhstani crop production," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 40, number 92323, September.
    3. Heidelbach, Olaf, 2006. "Efficiency of Selected Risk Management Instruments - An Empirical Analysis of Risk Reduction in Kazakhstani Crop Production," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25243, International Association of Agricultural Economists.
    4. Al Janabi, Mazin A.M., 2012. "Optimal commodity asset allocation with a coherent market risk modeling," Review of Financial Economics, Elsevier, vol. 21(3), pages 131-140.
    5. May, Daniel E., 2012. "Non-Economic Drivers Influencing Farmers' Incentives to Cooperate: Do they Remain Robust through Policy Changes?," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 40(2), pages 1-23.
    6. Wyn Morgan & John Cotter & Kevin Dowd, 2012. "Extreme Measures of Agricultural Financial Risk," Journal of Agricultural Economics, Wiley Blackwell, vol. 63(1), pages 65-82, February.
    7. Mazin A.M. Al Janabi, 2012. "Optimal commodity asset allocation with a coherent market risk modeling," Review of Financial Economics, John Wiley & Sons, vol. 21(3), pages 131-140, September.

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