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Agricultural Bank Portfolio Adjustments to Risk
Glenn D. Pederson
American Journal of Agricultural Economics
Vol. 74, No. 3 (Aug., 1992), pp. 672-681
Stable URL: http://www.jstor.org/stable/1242580
Page Count: 10
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An asset allocation model is developed in which the bank's problem is one of selecting the mix of loan assets and securities that will generate desired levels of portfolio return and risk. A reduced-form, econometric model is derived and historical rural bank asset allocations are predicted. Asset equations show consistency with the framework of equilibrium adjustments under uncertainty. Higher expected default rates on variable rate loans result in significant joint effects, which alter a bank's optimal allocation.
American Journal of Agricultural Economics © 1992 Agricultural & Applied Economics Association