Returns on rights: A 28-year investment analysis of Iceland's ITQ quotas

Abstract

The present study analyses the return and risk profile of Permanent Quota Shares (PQS) in Iceland's Individual Transferable Quota (ITQ) fisheries management system between 1992 and 2019. The hypothetical "armchair fisherman" is defined as an investor who does not partake in fishing activities but holds PQS and leases out the associated catch entitlements. This construct was devised to assess the financial performance of quota ownership as a passive investment. PQS represent tradable rights to a fixed share of the Total Allowable Catch (TAC), with the potential to generate returns through both capital gains and annual lease income. The objective of this research is to examine PQS as investment instruments by comparing their performance to major domestic and international asset classes. The analysis uses a 28-year dataset covering Iceland’s five most valuable demersal species –cod, haddock, saithe, redfish and Greenland halibut – to apply standard financial metrics, including average return, standard deviation and the Sharpe ratio. The results demonstrate that an investor adopting an armchair fishing strategy would have achieved an average annual return of 21.6%, with a Sharpe ratio of 0.72. This significantly outperforms equities, bonds, and other benchmarks. The analysis employs a 28-year dataset encompassing Iceland's five most valuable demersal species – cod, haddock, saithe, redfish and Greenland halibut – to implement standard financial metrics, including average return, standard deviation and the Sharpe ratio. The findings indicate that an investor who had adopted a passive investment approach would have attained an average annual return of 21.6%, with a Sharpe ratio of 0.72. This investment strategy has been shown to significantly outperform traditional benchmarks such as equities and bonds. The findings demonstrate the strong financial performance of PQS and emphasise the importance of governance structures in shaping the distribution of economic rents in rights-based fisheries systems.