Should farmers invest in financial assets as a risk management strategy? Some evidence from New Zealand

Gilbert Nartea and Paul Webster

Australian Journal of Agricultural and Resource Economics, 2008, vol. 52, issue 2, 20

Abstract: This study explores the potential for risk reduction by New Zealand farmers through the diversification of their farm asset portfolios to include financial investments such as ordinary industrial shares, government bonds and bank bills. Low correlations between rates of return on farm and these financial assets suggest that significant reduction of income variability might follow their inclusion in farmers’ portfolios. Stochastic efficiency analysis is used to analyse alternative portfolios of ordinary shares, government bonds and bank bills and New Zealand farmland, using coefficients of absolute risk aversion derived from a negative exponential utility function. The results suggest that those farmers showing high degrees of risk aversion would gain utility by including financial assets in their portfolios. Deregulation of the New Zealand economy in the 1980s appeared to reduce the potential gains from diversification. Bonds rather than ordinary shares are the main contributors to portfolios which maximise utility for individuals classified as ‘somewhat’ risk averse.

Keywords: Agricultural and Food Policy; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Should farmers invest in financial assets as a risk management strategy? Some evidence from New Zealand * (2008)
Working Paper: Should Farmers Invest in Financial Assets as a Risk Management Strategy? Some Evidence from New Zealand (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aareaj:118538

DOI: 10.22004/ag.econ.118538

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