Assessing forestry-related assets with the intertemporal capital asset pricing model

The intertemporal capital asset pricing model is used to assess the risk-return relationship between forestry-related assets and innovations in state variables using quarterly returns from 1988Q1 to 2011Q4. Market excess returns and innovations in the small-minus-big and high-minus-low factors, interest rate, term spread, default spread and aggregate consumption explain about 80% of the variation in cross-sectional returns of 16 forestry-related assets. Beta loadings on innovations in high-minus-low, interest rate and term spread induce significant risk premiums, and should be priced to determine the cross-sectional expected returns of the forestry-related assets. In general, average excess returns of the forestry-related assets decrease from the period of 1988Q1-1999Q4 to the period of 2000Q1-2011Q4. Significant positive excess returns are obtained in the first sub-period for private- and public-equity timberland assets but not in the second sub-period. Insignificant excess returns are obtained for forest products and timber products in the whole sample period. The results are robust to different specification tests.

Duke Scholars

Author Bin Mei Environmental Sciences and Policy