Abstract
Although the discounted cash-flow is still considered to be the fundamental value of an asset, there are few studies which assess its ability to explain movements in the market prices of agricultural assets. The aim of this work was to compare the evolution of market prices of Farmland to the series of values that would be obtained by applying the income approach method using official Spanish statistical data as well as two proposed methods: on the similarity of the dynamical structure of prices and returns time series, on the one hand; and on the regression between both series, on the other. The results obtained are not consistent with the hypothesis that the values obtained by the income approach method can explain the movements observed in market prices. Only in certain isolated cases, such as the Autonomous Region of Aragón. Therefore, other causes should be considered both at national and regional level.
Highlights
According to valuation theory, the predictable present value of cash-flows that an asset is expected to generate is still accepted as being the fundamental value of an asset; the applied discount rate should consider the associated risk when obtaining those cashflows
First and from the methodology used by Tegene & Kuchler, this paper studied how well the present value model explains the Spanish Farmland price movements under rational expectations
Coinciding with them, it can be concluded that the economic returns on Farmlands are not sufficient for explaining the behaviour of market prices
Summary
The predictable present value of cash-flows that an asset is expected to generate is still accepted as being the fundamental value of an asset; the applied discount rate should consider the associated risk when obtaining those cashflows. This procedure is widely used in Farmland appraisal, being identified as the income approach valuation method. The discounted variable is not always the same as the net cash-flows, which is usual in both financial asset and firm valuation. B. Segura-García del Río et al / Span J Agric Res (2012) 10(2), 271-280
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