Investments in Timberland and Softwood Timber as Parts of Portfolio Selection in the United States: A Cointegration Analysis and Capital Asset Pricing Model

摘要

In this article we investigated the financial performance of investments in timberland and timber and their correlations with nonforestry financial assets in the United States. Cointegration analysis and the capital asset pricing model were used to examine the long-run and short-run correlations with quarterly data from January 1992 to June 2006. The results of the cointegration analysis revealed that investment return on timberland tended to increase by 1.3% as Southern softwood stumpage price increased by 1%, indicating that a shift from pulpwood to sawtimber production might increase timber price and thus benefit timberland investment. The results also indicated that there were positive correlations between farmland return and Southern softwood stumpage price and between the stock market and timberland, indicating that treatments such as high-intensity site preparation might increase land quality and, hence, enlarge timber size and increase timber price. However, investors need to be cautious with the stock market because any change in the stock market has a potential effect on the timberland market. The results of the capital asset pricing model showed that timberland generated significant excess returns over the study period, but softwood timber did not. Timberland or softwood did not reduce systematic risk in a portfolio with stocks in the short run. In the short run, abnormal returns on timberland did occur, and timberland would be a desirable investment vehicle mixed with real estate. [PUBLICATION ABSTRACT]