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Assessing the Inflation Hedging Ability of Timberland Assets in the United States

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Inflation hedging is one of the unique features of timberland assets that attract timberland investors. This study uses Fisher hypothesis and capital asset pricing model under inflation to analyze how effectively private- and public-equity timberland assets hedge actual, expected, and unexpected inflation in the United States over 1987 to 2009. Rolling regression is used to evaluate whether timberland assets can persistently hedge inflation, whereas the state space model is used to examine the time-varying inflation hedging ability. Empirical results suggest that private-equity timberland assets do hedge actual, expected, and unexpected inflation, whereas public-equity timberland assets are not consistent in hedging actual, expected, or unexpected inflation. Hedging effectiveness depends on the state of the economy. We find that private-equity timberland assets are effective in hedging inflation during the boom and less effective during the recession. Investment horizon also plays a significant role in timberland inflation hedging. The longer people invest in the private-equity timberland assets, the stronger and more consistent the hedging ability holds.
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Keywords: capital asset pricing model under inflation; inflation hedging; rolling regression; state space model; timberland investments

Document Type: Research Article

Publication date: 2013-02-09

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  • Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
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    June 1, 2016 to Feb. 28, 2017

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