Properties of Timberland Returns

Sammanfattning: Assumptions and proxies underlying the return composition of timberland investments have created a divergence of findings in academics' and practitioners' research alike. This paper removes the necessity for these assumptions by including price estimates from timberland property brokers in a complete Swedish dataset (1951-2011) and suggests that the previous proxies bare little resemblance of actual timberland returns. An alternative proxy is proposed. The obtained timberland returns provide evidence of low market exposure and poor inflation hedge characteristics independent of market regimes. Furthermore, timberland returns increase when sell side liquidity deteriorates suggesting the existence of a liquidity premium. Focusing on the direct returns, predictability is identified but deemed too weak to provide fruitful forecasts. Finally, a regional Swedish dataset (1991-2011) suggests that there is market segmentation within Swedish timberland and portfolio improvements to be made by including regional timberland in a broader investment portfolio comprised of stocks and real estate.