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The Importance Of Financial Leverage And Risk Aversion In Risk Management Strategy Selection

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  • Baker, Timothy G.
  • Gloy, Brent A.
Abstract
The problem of choice among risk-management strategies is addressed with the stochastic dominance with a risk-free asset (SDRA) criteria. The SDRA criteria consider all possible combinations of the strategies and financial leverage. This allows for strategies with less business risk, less expected return, and greater leverage to dominate strategies with greater business risk and greater expected return. Results show that the inclusion of the risk-free asset significantly improves the discriminatory power of the ordinary stochastic dominance criteria for the case of risk-management strategies. Copyright 2002, Oxford University Press.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Baker, Timothy G. & Gloy, Brent A., 2001. "The Importance Of Financial Leverage And Risk Aversion In Risk Management Strategy Selection," 2001 Regional Committee NC-221, October 1-2, 2001, McLean, Virginia 132391, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    • Handle: RePEc:ags:nc2001:132391
    DOI: 10.22004/ag.econ.132391
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    2. Jeffrey Harrison & Matthew Hart & Derek Oler, 2014. "Leverage and acquisition performance," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 571-603, October.
    3. Pinochet-Chateau, Rene & Shadbolt, Nicola M. & Holmes, Colin & Lopez-Villalobos, Nicolas, 2005. "Drivers of Risk in New Zealand Dairy Systems," 15th Congress, Campinas SP, Brazil, August 14-19, 2005 24289, International Farm Management Association.
    4. Makus, Larry D. & Wang, H. Holly & Chen, Xiaomei, 2003. "Evaluating Risk Management Strategies For Non-Irrigated Small Grain Producers," 2003 Annual meeting, July 27-30, Montreal, Canada 22257, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. de Matías Batalla, David, 2016. "The new paradigm of international production: Empirical evidence of Spanish offshoring activities," Economics Discussion Papers 2016-37, Kiel Institute for the World Economy (IfW Kiel).
    6. De Salvo, Maria & Capitello, Roberta & Gaudenzi, Barbara & Begalli, Diego, 2019. "Risk management strategies and residual risk perception in the wine industry: A spatial analysis in Northeast Italy," Land Use Policy, Elsevier, vol. 83(C), pages 47-62.
    7. Anindita Chakravarty & Rajdeep Grewal, 2011. "The Stock Market in the Driver's Seat! Implications for R&D and Marketing," Management Science, INFORMS, vol. 57(9), pages 1594-1609, March.

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    Keywords

    Agricultural Finance; Risk and Uncertainty;

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