Assessing the Inflation Hedging Ability of Timberland Assets in the United States
Abstract: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.
Document Type: Research Article
Publication date: February 9, 2013
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