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Evaluating the Financial Performance of Timberland Investments in the United States

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Abstract:

Timberland properties have gained increasing attention in recent decades. The attractiveness of this asset primarily lies in its unique feature—the biological growth, which is independent of traditional financial markets. Using both parametric and nonparametric approaches, in this study we reexamine the financial performance of private- and public-equity timberland investments in the United States. Private-equity timberland returns are proxied by the National Council of Real Estate Investment Fiduciaries Timberland Index, whereas public-equity timberland returns are proxied by the value-weighted returns on a dynamic portfolio of the US publicly traded forestry firms that had or have been managing timberlands. The parametric analyses reveal that private-equity timberland assets outperform the market and have low systematic risk, whereas public-equity timberland assets fare similarly to the market. The nonparametric analyses reveal that both private- and public-equity timberland assets have higher excess returns.

Keywords: Fama‐French three-factor model; capital asset pricing model; state space model; stochastic discount factor

Document Type: Research Article

Publication date: October 1, 2010

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