PORTFOLIO OPTIMIZATION WITH AN ALTERNATIVE INVESTMENT: THE INCLUSION OF FARMLAND INTO A TRADITIONAL ASSET PORTFOLIO
Rosta, Vina (Adv.: Q.Mao, Dr.), Q.Mao, Dr.
Optimal return seeking behavior has leaded investors to go beyond traditional asset classes in constructing their financial investment portfolio. Alternative investments are immensely attractive for financial investors as they seek for high return. Real estate securities such as farmland somehow fulfill investorsÂ’ demand. It has some desirable characteristics as an individual asset class. This security surprisingly generates high returns with low risk. In addition, its capacity to perform as an inflation hedge is also impressive. The aim of this thesis is to examine the ability of Farmland to enhance the performance of traditional portfolio. Using modern portfolio theory by Harry Markowitz and historical U.S. data for diverse asset classes, the inclusion of farmland is beneficial for investors in any strategies related to investorÂ’s characteristic. However, out-of-sample test based on this data and mean-variance optimization model has performed not so well.
Kata Kunci : Finance, Portfolio Optimization, Efficient Frontier Analysis, Asset Management
