MEASURING SYSTEMATIC RISK OF UNQUOTED AGRICULTURAL FARMS

Marián Tóth,Andrea Piterková,Drahoslav Lančarič,Tomáš Rábek,Radovan Savov

doi:10.15414/raae.2014.17.01.31-34

Marián Tóth, Andrea Piterková + Show 3 more

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https://doi.org/10.15414/raae.2014.17.01.31-34

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Abstract

In this paper we estimate systematic risk of the Slovak unquoted agricultural farms â agricultural cooperatives and companies, in the period of 2009-2012. An alternative Markowitz portfolio theory approach was applied. As a measure of the systematic risk, we used return on equity (ROE). Based on the dataset of 996 farms over years 2009-2012, the Slovak farm average ROE reached 0.048% and systematic risk 3%. The Slovak agricultural farms displayed low profitability. The average ROE was higher and systematic risk indicator was lower for agricultural companies than for agricultural production cooperatives. Thus the agricultural companies could be more attractive for investors.

Highlights

Risk is one of the main factors influencing the investment decision making process
The systematic and unsystematic risk belongs to the concept of Capital Asset Prising Model (CAPM) (Sharpe 1964; Lintner 1965) built on the mean-variance portfolio work of Markowitz (1952)
While the unsystematic risk reflects the firm specific risk sources that might be eliminated by the diversification, the systematic risk remains common for all entities in a particular sector and can be termed as the market risk. (Brealey and Myers, 2008)

Summary

Introduction

Risk is one of the main factors influencing the investment decision making process. Risk generally refers to the deviation of a considered indicator, and the risk's magnitude depends on the magnitude of volatility during a certain period. Very closely related to the CAPM is the Simple index model (SIM) equation, which is virtually identical to the CAPM equation, but without equilibrium asset pricing implications (Sharpe 1963, Hubbs et al 2009) It means, the model can be applied to other markets, the security market. The stocks, considered in the original model, represent the equity securities, and the return on stock reflects the return on equity invested into the business. It might be assumed, that deviation of return on equity could be considered for measurement of risk for unquoted companies

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