Applying Markowitz portfolio theory to measure the systematic risk in agriculture

Markowitz portfolio theory is the basic theory in Finance for portfolio diversification. Based on this theory market risk can be assessed. The paper uses the alternative Markowitz portfolio theory approach, by replacing the stock return with return on equity (ROE), to estimate the risk and profitability of unquoted agricultural farms. The development of risk and return of Slovak farms is estimated in the period of years 2000 – 2013, using the 5-years moving average. The portfolios are created for two types of production: crop farms and animal farms. The results show that from the point of production orientation, the crop farms record higher return and also higher risk in comparison to the animal farms. The development of risk and return reflects the structural changes in Slovak agriculture, which has been continually changing in the way of increasing the share of crop oriented farms.