Does Money Grow on Trees? The Diversification Properties of US Timberland Investments

32 Pages Posted: 22 Aug 2009

See all articles by Bert Scholtens

Bert Scholtens

University of Groningen - Department of Finance & Accounting

Laura Spierdijk

University of Groningen

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2009

Abstract

This paper quantifies the diversification potential of timberland investments in a mean-variance framework. The starting point is a broad set of benchmark assets represented by various indexes. Including publicly traded timberland investments from the US and Canada in the portfolio does not significantly increase mean-variance efficiency. At first sight, US private equity timberland seems to improve the mean-variance frontier, even if the portfolio already contains a forestry and paper equity index. Adding privately held timberland to the investment set increases the risk-adjusted excess return on the tangency portfolio with about 10 bp per quarter. However, after removing the appraisal smoothing bias from the raw timberland data, there is much less evidence that private equity timberland investments increase mean-variance efficiency. Even under mild assumptions regarding the appraisal smoothing bias, the inclusion of the unsmoothed Timberland Index increases the risk-adjusted excess return on the tangency portfolio with only 1 bp per quarter.

Keywords: timberland investments, mean-variance spanning, portfolio management

JEL Classification: G1, G12, L73

Suggested Citation

Scholtens, Bert and Spierdijk, Laura, Does Money Grow on Trees? The Diversification Properties of US Timberland Investments (August 20, 2009). Available at SSRN: https://ssrn.com/abstract=1458375 or http://dx.doi.org/10.2139/ssrn.1458375

Bert Scholtens

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Laura Spierdijk (Contact Author)

University of Groningen ( email )

PO Box 800
Groningen, 9700 AV
Netherlands

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