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An Application of Portfolio Theory to New Zealand's Public Sector

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Abstract

In this paper, modern portfolio measures of performance are applied to the New Zealand central government's assets and liabilities. The results of this analysis show the position of the government's portfolio relative to its individual holdings. Using this analysis, alternative uses of budget surpluses are considered: reducing domestic debt, reducing foreign debt, increasing lending to students, and investing in equities. Greater investment in equities, by the government, stands out as improving the performance of the portfolio (ie lower volatility and greater returns).

Suggested Citation

  • Jeff Huther, 1998. "An Application of Portfolio Theory to New Zealand's Public Sector," Treasury Working Paper Series 98/04, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:98/04
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    File URL: https://treasury.govt.nz/sites/default/files/2007-10/twp98-04.pdf
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    References listed on IDEAS

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    1. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    2. Elton, Edwin J. & Gruber, Martin J., 1992. "Optimal investment strategies with investor liabilities," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 869-890, September.
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    Cited by:

    1. Timothy C. Irwin, 2015. "Defining The Government'S Debt And Deficit," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 711-732, September.
    2. Nick Davis & Richard Fabling, 2002. "Population Ageing and the Efficiency of Fiscal Policy in New Zealand," Treasury Working Paper Series 02/11, New Zealand Treasury.
    3. Nick Davis, 2001. "Does Crown Financial Portfolio Composition Matter?," Treasury Working Paper Series 01/34, New Zealand Treasury.

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