INSTITUTIONAL PORTFOLIOS - DIVERSIFICATION THROUGH FARMLAND INVESTMENT

This article demonstrates that farmland can enhance the overall perfor mance of institutional portfolios which are currently dominated by sto cks, bonds, and business real estate. Unlike previous articles on farm land returns, this article addresses the issue of ''smoothing bias'' a ssociated with appraisal-based farmland returns. Improved measures of income returns to farmland are also used in developing the estimates o f optimal portfolios. Parametric testing revealed that farmland contin ues to enter the optimal portfolios even for large increases in the va riance or for large reductions in the annual returns to farmland.