The Returns and Volatility of Agribusiness Stocks:How Do They Measure Up to Non-Agribusiness Stocks?

Little literature exists that analyzes the historical risk and return associated with investing in the US agricultural sector. However, several observable trends have recently made investing in the US agricultural sector an area of interest among investors. Stock price indexes are a commonly used tool for summarizing the historical performance of a specific sector. A market-capitalization weighted stock price index is created to represent the largest US agribusiness firms since 1970, using the US Census Standard Industrial Classification system and the Economic Research Services definition of agribusiness. Geometric returns, standard deviation, Sharpe Ratio, and beta values are calculated for one, five, and ten-year holding periods. These performance measures are compared to that of the market as a whole using the Standard & Poors 500 and Dow Jones Industrial Average indexes as proxies.The results indicate that the historical returns associated with investing in the US agricultural sector were less than what could be expected by investing in a market index, however, the most recent data periods show the sector outperforming the market. Ex post, standard deviation measures indicate that the sector is less susceptible to price variability, while Sharpe Ratio measures show that it has enjoyed higher excess returns per unit of risk in recent years. The calculated beta values indicate that price movements in the sector, as summarized by the AG Index, lag behind general market movements.