Diversification and value-at-risk

A pervasive and puzzling feature of banks’ Value-at-Risk (VaR) is its abnormally high level, which leads to excessive regulatory capital. A possible explanation for the tendency of commercial banks to overstate their VaR is that they incompletely account for the diversification effect among broad risk categories (e.g., equity, interest rate, commodity, credit spread, and foreign exchange). By underestimating the diversification effect, bank’s proprietary VaR models produce overly prudent market risk assessments. In this paper, we examine empirically the validity of this hypothesis using actual VaR data from major US commercial banks. In contrast to the VaR diversification hypothesis, we find that US banks show no sign of systematic underestimation of the diversification effect. In particular, diversification effects used by banks is very close to (and quite often larger than) our empirical diversification estimates. A direct implication of this finding is that individual VaRs for each broad risk category, just like aggregate VaRs, are biased risk assessments.

Reconstructing the history of maize streak virus strain a dispersal to reveal diversification hot spots and its origin in southern Africa

Maize streak virus strain A (MSV-A), the causal agent of maize streak disease, is today one of the most serious biotic threats to African food security. Determining where MSV-A originated and how it spread transcontinentally could yield valuable insights into its historical emergence as a crop pathogen. Similarly, determining where the major extant MSV-A lineages arose could identify geographical hot spots of MSV evolution. Here, we use model-based phylogeographic analyses of 353 fully sequenced MSV-A isolates to reconstruct a plausible history of MSV-A movements over the past 150 years. We show that since the probable emergence of MSV-A in southern Africa around 1863, the virus spread transcontinentally at an average rate of 32.5 km/year (95% highest probability density interval, 15.6 to 51.6 km/year). Using distinctive patterns of nucleotide variation caused by 20 unique intra-MSV-A recombination events, we tentatively classified the MSV-A isolates into 24 easily discernible lineages. Despite many of these lineages displaying distinct geographical distributions, it is apparent that almost all have emerged within the past 4 decades from either southern or east-central Africa. Collectively, our results suggest that regular analysis of MSV-A genomes within these diversification hot spots could be used to monitor the emergence of future MSV-A lineages that could affect maize cultivation in Africa. © 2011, American Society for Microbiology.

Diversification for sustainable development in rural and regional Australia : how local community leaders conceptualise the impacts and opportunities from agriculture, tourism and mining

Although the multiple economic, environmental and social challenges threatening the viability of rural and regional communities in Australia are well-known, little research has explored how community leaders conceptualise the impact and opportunities associated with economic diversification from agriculture into alternative industries, such as tourism and mining. This qualitative research, utilising the Darling Downs in Queensland as a case study, documents how 28 local community leaders have experienced this economic diversification process. The findings reveal that local community leaders have a deep understanding about the opportunities and challenges presented by diversification, articulating a clear vision about how to achieve the best possible future for their region. Despite excitement about growth, there were concerns about preserving heritage, the increased pressure on local infrastructure and an ageing population. By documenting local leader’s insights, these findings may help inform planning for rural and regional communities and facilitate management of the exciting yet challenging process of growth and diversification

Innovative methods for assessing viability of diversification into new markets : a study based on an engineering consultancy

This study resulted in the development of a decision making tool for engineering consultancies looking to diversify into new markets. It reviewed existing decision tools used by contractor's entering new markets to develop a bespoke tool for engineering consultants to establish more rigor around the decision making process rather than rely purely on the intuition of company executives. The tool can be used for developing medium and long term company strategies or as a quick and efficient way to assess the viability of new market opportunities when they arise. A combination of Delphi and Analytical Hierarchy Process was selected as the basis of the decision theory.

The evolution and diversification of Dicers in plants

Most multicellular organisms regulate developmental transitions by microRNAs, which are generated by an enzyme, Dicer. Insects and fungi have two Dicer-like genes, and many animals have only one, yet the plant, Arabidopsis, has four. Examining the poplar and rice genomes revealed that they contain five and six Dicer-like genes, respectively. Analysis of these genes suggests that plants require a basic set of four Dicer types which were present before the divergence of mono- and dicotyledonous plants (∼200 million years ago), but after the divergence of plants from green algae. A fifth type of Dicer seems to have evolved in monocots. © 2006 Federation of European Biochemical Societies.

Revenue diversification opportunities from sugarcane

Sugarcane is a major global agricultural crop that produces significant quantities of sugar and biomass in tropical and sub-tropical regions. Over many centuries, the crop has been grown primarily for its high sugar content which traditionally contributes over 95% of the revenue derived from the crop. While the production of renewable electricity from bagasse and rum from molasses has a long history, in more recent decades significant advances have been made in the production of cogeneration products and fuel ethanol at large scale. Sugarcane biorefineries producing fuels, green chemicals, biopolymers and bio-products offer great potential for improving the profitability of sugarcane production. This paper will address the opportunities available for sugarcane biorefineries to contribute to future profitability and sustainability of the sugarcane industry.

Avian diversification patterns across the K-Pg boundary: Influence of calibrations, datasets, and model misspecification

Birds represent the most diverse extant tetrapod clade, with ca. 10,000 extant species, and the timing of the crown avian radiation remains hotly debated. The fossil record supports a primarily Cenozoic radiation of crown birds, whereas molecular divergence dating analyses generally imply that this radiation was well underway during the Cretaceous. Furthermore, substantial differences have been noted between published divergence estimates. These have been variously attributed to clock model, calibration regime, and gene type. One underappreciated phenomenon is that disparity between fossil ages and molecular dates tends to be proportionally greater for shallower nodes in the avian Tree of Life. Here, we explore potential drivers of disparity in avian divergence dates through a set of analyses applying various calibration strategies and coding methods to a mitochondrial genome dataset and an 18-gene nuclear dataset, both sampled across 72 taxa. Our analyses support the occurrence of two deep divergences (i.e., the Palaeognathae/Neognathae split and the Galloanserae/Neoaves split) well within the Cretaceous, followed by a rapid radiation of Neoaves near the K-Pg boundary. However, 95% highest posterior density intervals for most basal divergences in Neoaves cross the boundary, and we emphasize that, barring unreasonably strict prior distributions, distinguishing between a rapid Early Paleocene radiation and a Late Cretaceous radiation may be beyond the resolving power of currently favored divergence dating methods. In contrast to recent observations for placental mammals, constraining all divergences within Neoaves to occur in the Cenozoic does not result in unreasonably high inferred substitution rates. Comparisons of nuclear DNA (nDNA) versus mitochondrial DNA (mtDNA) datasets and NT- versus RY-coded mitochondrial data reveal patterns of disparity that are consistent with substitution model misspecifications that result in tree compression/tree extension artifacts, which may explain some discordance between previous divergence estimates based on different sequence types. Comparisons of fully calibrated and nominally calibrated trees support a correlation between body mass and apparent dating error. Overall, our results are consistent with (but do not require) a Paleogene radiation for most major clades of crown birds.

HVAC system size – getting it right

There is evidence that many heating, ventilating & air conditioning (HVAC) systems, installed in larger buildings, have more capacity than is ever required to keep the occupants comfortable. This paper explores the reasons why this can occur, by examining a typical brief/design/documentation process. Over-sized HVAC systems cost more to install and operate and may not be able to control thermal comfort as well as a “right-sized” system. These impacts are evaluated, where data exists. Finally, some suggestions are developed to minimise both the extent of, and the negative impacts of, HVAC system over-sizing, for example: • Challenge “rules of thumb” and/or brief requirements which may be out of date. • Conduct an accurate load estimate, using AIRAH design data, specific to project location, and then resist the temptation to apply “safety factors • Use a load estimation program that accounts for thermal storage and diversification of peak loads for each zone and air handling system. • Select chiller sizes and staged or variable speed pumps and fans to ensure good part load performance. • Allow for unknown future tenancies by designing flexibility into the system, not by over-sizing. For example, generous sizing of distribution pipework and ductwork will allow available capacity to be redistributed. • Provide an auxiliary tenant condenser water loop to handle high load areas. • Consider using an Integrated Design Process, build an integrated load and energy use simulation model and test different operational scenarios • Use comprehensive Life Cycle Cost analysis for selection of the most optimal design solutions. This paper is an interim report on the findings of CRC-CI project 2002-051-B, Right-Sizing HVAC Systems, which is due for completion in January 2006.

A comparison of farmland returns in Australia, Canada, New Zealand and United States

Rural land is still a major property asset class and rural commodity production is an important domestic and export market in all economies. This paper carries out a comprehensive analysis of both rural production and land prices in four major rural production countries. The study compares rural property values in Unites States, Canada, Australia and New Zealand over a period 1990 to 2005 and analyzes and compares the capital return and total return performance for rural land in these four countries. The analysis allows a comparison of farm land returns for both a subsidised and non-subsidised farming policy to determine if levels of farm support result in variations in farm profitability and therefore farm land values.

The role of timber plantations in UK Investment portfolios

Although timber plantations and forests are classified as forms of agricultural production, the ownership of this land classification is not limited to rural producers. Timber plantations and forests are now regarded as a long-term investment with both institutional and absentee owners. While the NCREIF property indices have been the benchmarks for the measurement of the performance of the commercial property market in the UK, for many years the IPD timberland index has recently emerged as the U.K. forest and timberland performance indicator. The IPD Forest index incorporates 126 properties over five regions in the U.K. This paper will utilise the IPD Forestry Index to examine the performance of U.K. timber plantations and forests over the period 1981-2004. In particular, issues to be critically assessed include plantation and forest performance analysis, comparative investment analysis, and the role of plantations and forests in investment portfolios, the risk reduction and portfolio benefits of plantations and forests in mixed-asset portfolios and the strategic investment significance of U.K. timberlands.

An Analysis of UK Farmland : 1981-2004

The importance of agriculture in many countries has tended to reduce as their economies move from a resource base to a manufacturing industry base. Although the level of agricultural production in first world countries has increased over the past two decades, this increase has generally been at a less significant rate compared to other sectors of the economies. Despite this increase in secondary and high technology industries, developed countries have continued to encourage and support their agricultural industries. This support has been through both tariffs and price support. Although the average farm production property may require this support to maintain long-term production, the better farms can actually achieve production levels and commodity prices that result in these units being competitive on a free market basis. This paper will analyse the total return performance of UK farmland over the period 1981-2004. This analysis will compare the total return from rural properties in the UK and compare this performance to commercial property returns (total, office, retail, industrial), equities and gilts over this 24-year period. The analysis will be based on the IPD UK let land index and the IPD property index. The portfolio diversification and risk-reduction benefits of UK farmland will be highlighted. The analysis shows that rural property has negative correlations with equities and gilts, as well as insignificant positive correlations with retail, industrial and office property. Rural property also provides portfolio diversification benefits.

The role of timber plantations in U.K. investment portfolios

Although timber plantations and forests are classified as forms of agricultural production, the ownership of this land classification is not limited to rural producers. Timber plantations and forests are now regarded as a long-term investment with both institutional and absentee owners. While the NCREIF property indices have been the benchmarks for the measurement of the performance of the commercial property market in the UK, for many years the IPD timberland index has recently emerged as the U.K. forest and timberland performance indicator. The IPD Forest index incorporates 126 properties over five regions in the U.K. This paper will utilise the IPD Forestry Index to examine the performance of U.K. timber plantations and forests over the period 1981-2004. In particular, issues to be critically assessed include plantation and forest performance analysis, comparative investment analysis, and the role of plantations and forests in investment portfolios, the risk reduction and portfolio benefits of plantations and forests in mixed-asset portfolios and the strategic investment significance of U.K. timberlands.

The role of rural land in mixed asset investment portfolios

Rural land has not always been considered as a major long-term investment with both institutional investors and absentee owners in countries such as U.K. and Australia. Although rural land is included in both single asset and mixed asset portfolios in the U.S, it is not at the same levels as either commercial or industrial property. Rural land occupies over 50% of the total area of Australia, and comprises over 115,000 economic farm properties (excludes rural residential, hobby farms and rural lifestyle blocks. However, less than 1.6% of the total economic farm numbers are actually owned by corporate or institutional investors. This low level of corporate involvement in the Australian rural property market has limited both the investment performance research and inclusion of this rural land type in both property and mixed asset investment portfolios. In the U.S. rural land is also the most extensive real estate type based on total area occupied. The United States Department of Agriculture statistics (1998) show that in 1997 there were 2.06 million farms in the U.S., covering 968 million acres, with a total value of $912 billion and generating an annual income of $202 billion. The level of corporate ownership of farms in the U.S. is also higher than the level of corporate farm ownership in Australia. This high level of institutional ownership in rural land in U.S has provided the opportunity for the rural property asset class to be analysed in relation to it’s investment performance and possible role in a mixed asset or mixed property investment portfolio.