Measuring liquidity in agricultural land markets
ISSN: 0002-1466
Article publication date: 16 September 2021
Issue publication date: 7 July 2022
Abstract
Purpose
Liquidity is an important aspect of market efficiency. The purpose of this paper is threefold: first, this paper aims to discuss indicators that provide information about liquidity in agricultural land markets. Second, this paper aims to reflect on determinants of market liquidity and analyze the relationship with land prices. Third, this paper aims to conduct an empirical analysis for Germany that illustrates these concepts and allows hypothesis testing.
Design/methodology/approach
This study reviews liquidity dimensions and measurement in financial markets and derives indicators applicable to farmland markets. In an empirical analysis, this study exhibits the spatial and temporal variability of land market liquidity in Lower Saxony, a German federal state with the highest agricultural production value. This study uses a rich dataset that includes 72,547 sale transactions of arable land between 1990 and 2018. The research focuses on volume-based (number of transactions, volume and turnover) and time-based (trading frequency and durations) measures. A panel vector autoregression and Granger causality tests are applied to investigate the relation between land turnover and land prices.
Findings
The paper confirms the thinness of farmland markets but also reveals regional and temporal heterogeneity of land market liquidity. This study finds that the relation between market liquidity and prices is ambiguous. This study concludes that a high demand from expanding farms absorbs supply shocks regardless of the current price level in agricultural land markets.
Originality/value
Even though the relevance of agricultural land markets’ thinness is widely acknowledged in the literature, this paper is one of the first attempts to measure liquidity in agricultural land markets and to explain its relationship with land prices.
Keywords
Acknowledgements
Financial support from the German Research Foundation (DFG) through Research Unit 2569 “Agricultural Land Markets – Efficiency and Regulation” (www.forland.hu-berlin.de) is gratefully acknowledged. The authors thank the Oberer Gutachterausschuss für Grundstückswerte for providing data on farmland sales in Lower Saxony.
Citation
Kionka, M., Odening, M., Plogmann, J. and Ritter, M. (2022), "Measuring liquidity in agricultural land markets", Agricultural Finance Review, Vol. 82 No. 4, pp. 690-713. https://doi.org/10.1108/AFR-03-2021-0037
Publisher
:Emerald Publishing Limited
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