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a = 0.32836
t = 5.38
= 0.00254
t = -388
Ho
1
(H: a = 0)
(Ho: f = 1)
Note: R = .333.
curs because the effects of systematic movements in the average P/E are not considered.
In addition, empirical applications of the
CAPM have been criticized because empirical
tests have produced results inconsistent with
theory. There have been many of these studies,
a few of which are Blume and Friend; Black,
Jensen, and Scholes; Miller and Scholes; Blume
and Husick; and Fama and Macbeth. Nearly
all of the studies agree that the intercept of the
security market line is greater than the riskless
rate and that the slope is less than the market
risk premium. Roll pointed out that previous
tests of the CAPM were really tests of ex post
Collins
AgriculturalEquity 165
(1)
E(R,) = RF + X'3,
Primary Agricultural
Product
Poultry
Fruits, vegetables
Cattle
Shrimp, cheese
Wheat, cotton, sugar
beets, alfalfa
Citrus
Sugar
Miscellaneous crops
Shell eggs
Livestock, farming
Western JournalofAgriculturalEconomics
Table 3.
Estimated APT Reaction Coefficients for Ten Publicly Held Agricultural Firms
Estimated APT Coefficients
Firm
Cagles, Inc.
Castle and Cooke, Inc.
Friona Ind., Inc.
Katy Ind., Inc.
Newhall Land and Farming
Orange-Co., Inc.
San Carlos, Inc.
Southeastern Public Service
Sun City Ind., Inc.
Tejon Ranch Co.
0.0296*
0.0479*
0.0488*
0.0813*
0.0583*
0.0445*
0.0836*
0.0183*
0.0638*
0.0653*
/2
f3
R2
-0.0460*
-0.0006
-0.0006
-0.0251*
-0.0114
0.0226*
-0.0199
-0.0118
-0.0132
-0.0016
-0.0300*
0.0062
-0.0023
0.0068
0.0100
0.0084
0.0520*
0.0105
-0.0083
0.0389*
0.0283*
0.0147*
0.0039
0.0097
-0.0082
0.0005
0.0579*
0.0053
0.0116
-0.0118
.17
.33
.22
.41
.31
.13
.30
.07
.29
.24
... , 64t,
Rit
(4)
io + -illt + ...
i= 1,...,57.
+ Ai44t +
Eit
Company
Cagles, Inc.
Castle and Cooke, Inc.
Friona Ind., Inc.
Katy Ind., Inc.
Newhall Land and Farming
Orange-Co., Inc.
San Carlos, Inc.
Southeastern Public Service
Sun City Ind., Inc.
Tejon Ranch Co.
Mean
t= 1,...,84.
t= 1,...,84.
Required
Return
APT
(%)
11.1
18.4
20.2
25.5
20.7
20.7
18.9
11.0
23.5
20.5
19.05
The lambdas are the marginal effect of the betas on the required return of the portfolio, and
r is the error term.
The average value of each of the lambda
parameters over the eighty-four regressions was
used as the value for the APT model.4 The
annualized estimated APT equation for the
market model was
(5)
Ajt = jO + jlA, t
+7 'yjtj=
1,..., 10.
Collins
AgriculturalEquity 167
investors' requirements are accurately reflected by this small sample of firms and the prevailing rates of return to equity in commercial
agriculture, the average farm could not sell equity at par to an agricultural equity pool unless
investors expected substantial capital gains. It
appears that investors might be interested only
in the small proportion of commercial farms
that are very well managed and highly successful.
[Received January 1988; final revision
received May 1988.]
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