Progress 10/01/09 to 09/30/14
Outputs
Target Audience: The primary audience for this research project includesmanagers of rural financial institutions (commercial banks and Farm Credit System institutions)andfarmers. A secondaryaudience is state- and federal-level policymakers and financial system regulators. Changes/Problems:
Nothing Reported
What opportunities for training and professional development has the project provided?
Nothing Reported
How have the results been disseminated to communities of interest? The results of these research efforts has been disseminated to the target audiences in several ways. The outputshave been shared publiclyin the forms of graduate theses, published journal papers, working papers, and presentations to target audiences (such as bankers conferences). What do you plan to do during the next reporting period to accomplish the goals?
Nothing Reported
Impacts
What was accomplished under these goals?
Under objective #1, two projects are ongoing and will be completed as theses and journal paper submissions under the new research project. First, U.S. farm sector data and bank-level data is used to develop empirical models that banks and bank regulators can use to perform stress-testing analysis to evaluate the impacts of adverse land price shocks on the financial positions of agricultural banks. Second, we continue research on the measurement and management of portfolio risk for financial assets using a copula-based integrated approach. R programming methods are being used to determine the tail risk exposures for alternative equity and credit portfolios, and test for robustness of the selected portfolio risk measures. Completed research under objective #1 includes the following: We analyzed empirical methods that small commercial agricultural banks can use with their loan data to stress-test their loan portfolios. The stress tests focus on measuring the uncertainty about client revenues and costs, and the implications for risk exposure of the bank. A graduate thesis and two working papers were published, and the results were presented at a banker conference. An analysis of agricultural loan risk migration among Farm Credit Associations used borrower-level historical panel data covering 1997-2007. This research was published as a graduate thesis. A graduate thesis and a journal paper were published on the impact of increasing levels of loss given default and probability of default and their correlation on the economic capital requirements of an agricultural lender through the agricultural business cycle. This study improves our understanding of how changes in economic conditions in the agriculture sector drive the loan losses and capital levels of farm lenders. We published a graduate thesis and a journal paper on the financial impacts of access to a state-funded farm lending program in Minnesota. Under objective #2, we carried out three types of analyses: 1) use of weather derivatives to manage farm production risks, 2) identifying the determinants of productivity effects in the food industry and due to access to agricultural credit and technical assistance in agriculture, and 3) use of real options in farm investment. The investigation of the use of weather derivatives to hedge production risks and reduce the social costs of crop insurance resulted in a doctoral dissertation and a paper was submitted to a journal. A journal paper was published on the productivity effects from supermarket industry financial restructuring and ownership changes using panel data. A study of the financial impacts of access to a state-funded farm lending program in Minnesota resulted in a graduate thesis and a journal publication. A thesis was completed on the joint impacts of credit and technical assistance training in microfinance institutions on farm-level productivity. This research will be submitted to a journal. Third, real options analysis was used to evaluate hog production facility air filtration investments. This work is resulting in a graduate thesis.
Publications
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Progress 01/01/13 to 09/30/13
Outputs
Target Audience: The audience for our credit risk management work is agricultural and rural financial institutions, their managers, and bank regulators. The audiences for our analysis of commodity market integration and village bank performance are primarily policy makers at the national level in the respective countries. Our work on portfolio risk assessment is primarily targeted for an academic researcher audience. Changes/Problems:
Nothing Reported
What opportunities for training and professional development has the project provided?
Nothing Reported
How have the results been disseminated to communities of interest? Results from our bank stress-testing research will be published in ways that are accessible to bankers and regulators. The current research on land price shocks will be shared with the Ninth District Federal Reserve Bank and presented at banking industry meetings in 2014. The banks are adapting alternative methods to assess their capacity to absorb credit risk. These research results can provide them with clear indicators about which factors they need to control. These studies are timely and they match with the ongoing efforts of these institutions and their regulators to better understand and manage credit risk in the farm sector. The work on portfolio risk assessment is new and we expect that there will be several agricultural applications that we will publish in professional journals. Research findings from the work on innovation and shareholder intervention, commodity market price integration in Uganda, and village banks in China will be developed into journal papers and submitted for publication during this next year. What do you plan to do during the next reporting period to accomplish the goals? We intend to complete the projects identified in the progress narrative. Findings from several of these studies will be prepared and submitted to journals for publication.
Impacts
What was accomplished under these goals?
We continue to work on empirical models that can be used by banks and bank regulators to perform stress-testing analysis. We will use U.S. farm sector data and bank-level data to evaluate the impacts of adverse land price shocks on the financial positions of agricultural banks during the period 1970- present. We plan to compare in-sample with out-of-sample results using two modeling approaches; vector auto-regression and fixed-effects quantile auto-regression. We currently are assembling the data. Second, we are initiating research on the measurement and management of portfolio risk for financial assets using a GARCH and copula based integrated approach. The plan is to use that method to determine the tail risk exposures for alternative equity and credit portfolios, and test for robustness of the selected portfolio risk measures (conditional value at risk and expected shortfall). We are currently testing alternative specifications of the model using R programming methods. Third, we are developing and testing a model based on asymmetric information theory to analyze the effects of shareholder intervention on innovation decisions in publicly traded firms. The econometric analysis is exploring the joint relationship between intervention and stock price informativeness using historical U.S. company data. Preliminary results indicate that intervention has a significant negative impact on innovation performance over time and that intervention and stock price informativeness have off-setting joint effects on innovation. Fourth, we are developing a general equilibrium, incomplete markets, life cycle macroeconomic model to evaluate the welfare effects of alternative estate tax policies. This model explicitly incorporates entrepreneurial sector activity and intergenerational linkages. The model is being calibrated using U.S. panel data. Fifth, we are completing research on the degree of commodity market integration in Uganda. We apply weekly maize prices at regional markets to a threshold auto-regressive model and observe if the market prices are significantly co-integrated. Results suggest that the regional markets are not uniformly integrated with the central market, but the speed of price adjustment is sensitive to the period under analysis. Sixth, we are modeling the impacts of interest rate deregulation in China on newly formed rural village banks. The approach is to simulate the financial performance of a sample of the banks under alternative monetary policy shocks to deposit and loan rates. Preliminary results indicate that the effects vary according to bank ownership, cost structure and capital positions.
Publications
- Type:
Journal Articles
Status:
Accepted
Year Published:
2013
Citation:
Chen, G. 2013. Health costs, factor productivity and foreign direct investment, August, 70 p.
Feng, G. 2013. Does investor sentiment influence dividend policy?, May, 66 p.
Hertel, K. 2013. The effect of bond rating changes on stock prices in the electric utility industry, November, 32 p.
Kiiza, B. and Pederson, G. 2013. Export-led economic growth in the east African community trade bloc, Journal of International Agricultural Trade and Development. 8(2):165-181.
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Progress 01/01/12 to 12/31/12
Outputs
OUTPUTS: A study was completed on the financial impacts of access to a state-funded farm lending program in Minnesota. We show that there are liquidity effects from credit constraints for a significant share of beginning and low-resources farmers who participated in the program. The paper was submitted and accepted for journal publication. Second, a thesis project was completed that focuses on identifying the joint impacts of credit and technical assistance training in microfinance institutions. We identify the factors that result in different financial and economic impacts over time among the microfinance clients in El Salvador. Third, a journal paper was published on the productivity effects from supermarket industry restructuring and ownership changes. Using panel data we show that a key driver of productivity is a change from wholesaler-distribution to self-distribution in order to improve competitiveness and market access. Fourth, work continues on how small commercial agricultural banks can use their loan data to stress-test their loan portfolios. The stress tests focus on measuring the uncertainty about client revenues and costs, and the implications for risk exposure of the bank. Fifth, we completed an analysis of agricultural loan risk migration among Farm Credit Associations. The study uses entropy econometrics to evaluate risk migration in the context of farm borrower heterogeneity. PARTICIPANTS: Wonho Chung, graduate student; Da Liu, graduate student; Zihua Bian, graduate student; Jose Diaz, graduate student. TARGET AUDIENCES: The audience for our credit risk management work is agricultural and rural financial institutions and their managers. The supermarket work is meant for supermarket managers and industry analysts. The microfinance research is targeting managers of the microfinance institutions and policymakers. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
Published reports on agricultural credit risk analysis continue to be presented to community banks and Farm Credit System institutions. These institutions are adapting alternative methods to assess their credit risk exposures and risk migration. The findings have influenced the loan portfolio strategies and methods of analysis in the Farm Credit System and are beginning to have a positive impact on small banks. These studies are timely and they match with the ongoing efforts of these institutions to better understand and manage credit risk in the farm sector. Work on extending our work on stress-testing tools for small commercial agricultural banks is continuing in collaboration with the Center for Farm Financial Management. We are working with small agricultural banks to develop these tools for their use.
Publications
- Chung, W. and Pederson, G. 2012. Is productivity a factors in super market ownership changes and restructuring Journal of Agribusiness. 30(1):35-52.
- Chung, W. Pederson, G., Nel , R. 2012. Microeconomic effects of a state-funded farmer loan program. Agricultural Finance Review. 72(1):5-21.
- Liu, D. 2012. Investigating calendar effects in Chinese stock markets, May, 64p.
- Bian, Z. 2012. Credit risk migration of agricultural loans and unobserved borrower heterogeneity, April, 42 p.
- Diaz, J. 2012. Impacts of technical assistance and microcredit among rural households in El Salvador, 85 p.
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Progress 01/01/11 to 12/31/11
Outputs
OUTPUTS: A study was completed and published on the impact of increasing levels of loss given default and probability of default and their correlation on the economic capital requirements of an agricultural lender through the agricultural business cycle. This study improves our understanding of how changes in economic conditions in agriculture drive the loan losses and capital levels of lenders. Second, we completed a paper that evaluates the financial impacts of access to a state-funded farm lending program in Minnesota. The paper was submitted and accepted for journal publication. Third, work continues on a thesis project that focuses on identifying the joint impacts of credit and technical assistance training in micro finance institutions. We identify the factors that result in different financial and economic impacts over time among the micro finance clients in El Salvador. Fourth, a thesis research project was completed on the risk management aspects of weather derivatives. The study considers the implications of using weather derivatives to reduce the social costs of crop insurance with application to crop data from Minnesota. The results suggest that weather derivatives are more effective for reducing risk at the regional level, but not at the individual farmer level. The study shows that weather derivatives can reduce risk in the reinsurance market which could help lower the cost of crop insurance to farmers, thus reducing social costs. Fifth, we completed a project that analyzed how small commercial agricultural banks can use their loan data to stress-test their portfolios. The stress tests focus on measuring the uncertainty about client revenues and costs, and the implications for risk exposure of the bank. Two publications were completed and the results of the study were presented at a banker conference. Sixth, we continue to analyze agricultural loan risk migration among Farm Credit Associations. The study uses entropy econometrics to evaluate risk migration in the context of farm borrower heterogeneity. PARTICIPANTS: Wonho Chung, Graduate Student Nicholas Sakaimbo, Graduate Student Yu-Szu Chu, Graduate Student Jose Diaz, Graduate Student Wyn Richardson, Economist TARGET AUDIENCES: The audience for our credit risk management work is agricultural and rural financial institutions and their managers. In our micro finance research we are targeting the managers of the micro finance institutions and policymakers. PROJECT MODIFICATIONS: Not relevant to this project.
Impacts
Published reports on agricultural credit risk analysis continue to be presented to community banks and Farm Credit System institutions. These institutions are adapting alternative methods to assess their credit risk exposures. The findings have influenced the loan portfolio strategies and methods of analysis in the Farm Credit System and are beginning to have a positive impact on small banks. These studies are timely and they match with the ongoing efforts of these institutions to better understand and manage credit risk in the farm sector. Work on extending our work on stress-testing tools for small commercial agricultural banks is in the early stages. We work with several small banks to develop these tools for their use.
Publications
- Chung, W. 2011. Evaluating weather derivatives and crop insurance for farm production risk management in southern Minnesota, July, 128 pp.
- Pederson, G., Chu, Y., Richardson, W. 2011. A visual approach to community bank assessment of agricultural portfolio risk exposure. Staff Paper P11-6, September.
- Pederson, G., Chu, Y., Richardson, W. 2011. Community bank assessment of agricultural portfolio risk exposure: The literature and the methods in use. Staff Paper P11-3, June.
- Pederson, G. and Sakaimbo, N. 2011. Default and loss given default in agriculture. Agricultural Finance Review. 71(2):148-161.
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Progress 01/01/10 to 12/31/10
Outputs
OUTPUTS: A study continues on agricultural loan risk migration using loan data from several Farm Credit Associations. The analysis uses entropy econometrics to evaluate risk migration in the context of borrower heterogeneity, where the underlying characteristics of borrowers who migrate and those who do not migrate are not observed. Panel data has been assembled covering 1997-2007, and the econometric analysis is nearing completion. Once the report is written we will present the findings to the participating Farm Credit Bank. Another study was completed on the impact of increasing levels of loss given default and probability of default and their correlation on the economic capital requirements of an agricultural lender through the agricultural business cycle. This study will improve our understanding of how changes in economic conditions in agriculture drive the loan losses and capital levels of lenders. This study was submitted to a journal. We continue to research the microeconomic impacts of lending institutions. We prepared a paper that evaluates the financial impacts of access to a state-funded farm lending program in Minnesota. A paper was submitted for journal publication. We continue to work on a thesis project that focuses on identifying the joint impacts of credit and training in microfinance institutions. We are identifying the factors that result in different financial impacts over time among the microfinance clients using survey data from El Salvador. A thesis research project is continuing on the risk management aspects of weather derivatives and the implications of using weather derivatives to reduce the social costs of crop insurance. We are currently applying the model to crop yield data from Minnesota. The results suggest that weather derivatives are more effective for reducing risk at the regional level, but not at the individual farmer level. The primary use of these financial contracts is to reduce risk in the reinsurance market which could help to reduce the cost of crop insurance to famers and, thus, reduce social costs. We are initiating a project that will develop a computer-based tool that small commercial agricultural banks can use to stress-test their loan portfolios. These stress tests will focus on measuring the uncertainty about client revenues and costs, and the implications for risk exposure of the bank. We have assembled the data of a case bank for the model and we are in the process of designing the model. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: The audience for our credit risk management work is farm and rural financial institutions and their managers. In our microfinance research we are targeting the managers of the microfinance institutions and policymakers. PROJECT MODIFICATIONS: Not relevant to this project.
Impacts
Published reports on agricultural credit risk analysis continue to be presented to farm financial institutions and these institutions are adapting alternative methods to assess their credit risk exposures. The findings have influenced the loan portfolio strategies and methods of analysis in the Farm Credit System. These studies are timely and they match with the ongoing efforts of district Farm Credit Banks to better understand and manage credit risk in the farm sector. As we expand our work on developing a computer tool for small commercial agricultural banks to perform stress-tests of their loan portfolios, we expect that those results will also have an impact on how banks measure and manage their credit portfolio risk exposures, since many small banks are searching for tools that help them perform those analyses.
Publications
- No publications reported this period
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