Progress 10/01/04 to 09/30/10
Outputs
OUTPUTS: As agriculture becomes more industrialized, the role of risk measures such as VaR will become more utilized. In this case it was applied to geographical diversification and also modifying the traditional VaR estimation by incorporating a copula dependence parameter into the VaR estimation. In addition, an alternative risk measure was also calculated, CVaR. The CVaR, unlike VaR, is a coherent risk measure. Thus it does not suffer from many of the shortcomings of the VaR. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
A land portfolio consisting of Dryland wheat production acres in Texas, Colorado, and Montana were investigated. Three series of net returns were calculated for each region. Based on the VaR and the CVaR, the portfolio was optimized based on minimizing the expected loss based on historical net revenues. The results showed that diversification could be reduced by producing in all three areas.
Publications
- Xu, Jin and David j. Leatham. 2009. "Introduction of Farmland Assests Values into Dynamic Land Price Models." Poster Presented at Texas A&M University, Agricultural Programs Conference, January 2009.
- Larsen, Ryan A., Dmitry Vedenov, and David J. Leatham. 2009. "Enterprise-level risk assessment of geographically diversified commercial farms: a copula approach" Selected Paper Presented at the Southern Agricultural Economics Association, Annual Meeting, Atlanta, Georgia, January 31-Febraury 3, 2009.
- Fraire Dominguez, Francisco. 2009. "Inductive Causation on Strategic Behavior: The Case of Retailer and Manufacturer Pricing." PhD Dissertation, Texas A&M University, December 2009.
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Progress 01/01/08 to 12/31/08
Outputs
OUTPUTS: Water shortage has been a significant issue for several decades in the Texas High Plains. Agriculture has been identified as the main activity contributing to this shortage. To address this issue, many efforts have been focused on the possible adoption of sophisticated irrigation systems with high levels of water application efficiency. In this study, the entry and exit thresholds for the low energy precision application (LEPA) system are analyzed simultaneously in cotton farming in the Texas High Plains using a real options approach. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
The results show that the LEPA system is profitable only when cotton price is set above $1.59/kg. The exit (entry) threshold is consistently low (high) over a range of values for parameter changes including investment cost, exit cost, variable cost, risk-adjusted discount rate, and volatility rate, so it is unlikely that farmers with irrigation systems in place would leave them easily. This implies that to attain the goal of saving water, the community needs to focus on convincing current farmers to replace old irrigation systems with new irrigation systems.
Publications
- Xu, Jin and David J. Leatham. 2008. "Correct Specification of Risk Aversion in Dynamic Land Price Models." Presented at the Regional Research Committee, NC-1014 Annual Meeting, Federal Reserve Bank of Kansas City, September 25-26.
- Zohrabyan, Tatevik, David J. Leatham and Ximing Wu. 2008. "Interdependence of Oil Prices and Stock Market Indices: A Copula Approach." Poster Presented at Texas A&M System, 2008 Annual Pathways Research Symposium, Award Winning Poster, December.
- Seo, Santaek, Eduardo Segarra, Paul D. Mitchell and David J. Leatham. 2008. "Irrigation Technology Adoption and Its Implication for Water Conservation in the Texas High Plains: A Real Options Approach." Agricultural Economics, 38:47-55.
- Xu, Jin and David J. Leatham. 2008. "The Effect of the State Percentage of Active Real Estate Agents on Future House Prices in Local Markets." Poster Presented the 2008 Student Research Week, Poster presentation in Business Studies Marketing/Management/Finance), Texas A&M University, March.
- Fraire, Francisco, and David J. Leatham. 2008. "Identification of World Economic Dependencies for Business Decision Making." Poster Presented the 2008 Student Research Week, Poster presentation in Business Studies Marketing/Management/Finance), First Place, Texas A&M University, March.
- Larsen, Ryan, Jared L. Wolfley, James W. Mjelde and David J. Leatham. 2008. "Incorporating Copulas in Geographical and Portfolio Optimization." Presented at the Regional Research Committee, NC-1014 Annual Meeting, Federal Reserve Bank of Kansas City, September 25-26.
- Zohrabyan, Tatevik. 2008. "Essays on Time Series and Causality Analysis in Financial Markets." PhD Dissertation, Texas A&M University, December.
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Progress 01/01/07 to 12/31/07
Outputs
We consider dynamic behaviors of returns on real estate, equity markets, and related macroeconomic variables. Using monthly data measured over the period 1971-2004, we find a single structural break in a multivariate time series model of returns on REITs, returns on equities, industrial production, aggregate price inflation, default risk, the term spread, and short term interest rates. The break date is October 1980. A distinct difference in the contemporaneous causal structure generating these variables before and after the break is found. The paper shows that REITs play a more important role in the US economy after the 1980 break than before.
Impacts
Our research shows that REITs play a more important role in the US economy after the 1980 break than before. Further, there is also evidence indicating that returns on REITs may actually lead the SP500. These results suggest that real estate investment has played and will play a more exogenous role in the US economy after the 1980 break date.
Publications
- Kim, Jin, David J. Leatham and David A. Bessler. 2007. "REITs Dynamics Under Structural Change with Unknown Break-Points" Journal of Housing Economics 16(March) 37-58.
- Zohrabyan, Tatevik, David Leatham, and David Bessler. 2007. "Cointegration Analysis of Regional House Prices in U.S." Proceedings of the Regional Research Committee, NC-1014 Annual Meeting Schedule at Rabo AgriFinance, Creve Coeur, MO, October 4-5.
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Progress 01/01/06 to 12/31/06
Outputs
This study investigates the relationship between consumer debt and aggregate economic activity based on time series methods and directed acyclic graphs (DAG). Quarterly US data, measured over the period 1980 to 2003, on consumer debt, gross domestic product (GDP), interest rates, housing starts, and domestic auto sales, are analyzed in an Error Correction Model (ECM). Contemporaneous innovations from this ECM are given a structural representation, using recent developments in DAG modeling. The ECM and DAG components are summarized using innovation accounting techniques (impulse response functions and forecast error variance decomposition). The DAG causal pattern reveals a causal flow from GDP to consumer debt; the subsequent innovation accounting results also show that consumer debt is not exogenous in contrast to GDP and other indicators. This result concurs with a previous study based on Granger causality, but contradicts other works that claim consumer debt is a
root cause of aggregate economic performance.
Impacts
Our research reveals that there is a causal flow from GDP to consumer debt and that consumer debt is least exogenous and has little influence on GDP and other economic variables. These findings tend to suggest consumer debt as a natural occurrence of the economy, instead of a causing factor.
Publications
- Yang, Juan. 2006. Three Essays on Monetary Policy, Financial Market, and Economic Growth in U.S. and China. PhD Dissertation, Texas A&M University, December.
- Zhang, Jin. 2006. Three Essays on Business Failure: Causality and Prediction. PhD Dissertation, Texas A&M University, December.
- Zhang, Jin, David A. Bessler, and David J. Leatham. 2006. Does Consumer Debt Cause Economic Recession? Evidence Using Directed Acyclic Graphs. Applied Economics Letters, 13(2006): 401-407.
- Hagerman, Amy, David J. Leatham and John Park. 2006. Impact of Perceptions and Practices on the Financial Performance of Texas Cooperatives. Proceedings of the Regional Researh Committee, NC-1014, Annual Meeting, Federal Reserve Bank of Minneapolis, October 3-4, 2005. Staff Paper 06-03, Purdue University, March 2006, pp. 143-54.
- Fraire, Francisco and David J. Leatham. 2006. Foreign Exchange Forecasts for Business Decision Making. Presented at the 2006 NC-1014 meeting at ERS in Washington DC, October 2-3.
- Kim, Jin Woong. 2006. Essays on Empirical Time Series with Causality and Structural Change. PhD Dissertation, Texas A&M University, August.
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Progress 01/01/05 to 12/31/05
Outputs
The effects of crop insurance and the Marketing Loan Program on optimal nitrogen use and acreage allocation for a case cotton-sorghum farm in Texas was analyzed. A mathematical programming model was used to solve for the optimal nitrogen fertilizer rate, crop acreage allocation, coverage level, and price election factor, along with participation in the crop insurance and the Marketing Loan Program for both crops. Results show that depending on the crop and farmer risk aversion, these federal risk management programs increase or decrease optimal fertilizer rates -6% to 3%, increase optimal cotton acreage 94-144%, and decrease sorghum acres up to 50%. The lead-lag relationship between futures trading activity (volume and open interest) and cash price volatility for major agricultural commodities was examined. Granger causality tests and generalized forecast error variance decompositions show that an unexpected increase in futures trading volume unidirectionally causes
an increase in cash price volatility for most commodities. Likewise, there is a weak causal feedback between open interest and cash price volatility. These findings were generally consistent with the destabilizing effect of futures trading on agricultural commodity markets.
Impacts
Government programs that are implemented to reduce risk or enhance income for farm firms may have undesirable consequences to the environment. Our research quantifies the impact that selected government programs have on fertilizer use.
Publications
- Seo, Sangtaek, Paul D. Mitchell, and David J. Leatham. 2005. "Effects of Federal Risk Management Programs on Optimal Acreage Allocation and Nitrogen Use in a Texas Cotton-Sorghum System." Journal of Agricultural & Applied Economics, 37(Number 3).
- Yang, Jian, R. Brian Balyeat, and David J. Leatham. 2005. "Future Trading Activity and Commodity Spot Price Volatility." Journal of Business Finance & Accounting, 32(January/March 2005): 297-323.
- Yang, Juan, and David J. Leatham. 2004. "Bank Lending Channel: Causality Analysis for the Transmission U.S. Monetary Policy." Proceedings of the Regional Researh Committee, NC-1014, Annual Meeting, Chicago Federal Reserve Bank, October 4-5, 2004.
- Seo, Sangtaek. 2004. "Effects of Federal Risk Management Programs on Investment, Production and Contract Design under uncertainty." PhD Dissertation, Texas A&M University, December 2004.
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