Relationship of public farmland and timberland REITs with their private equity counterparts and selected asset classes

Purpose: The purpose of this study is to examine the return sensitivity of public farmland and timberland real estate investment trusts (REITs) to private-equity farmland, timberland and real estate, long-term corporate bonds and large- and small-cap stocks. The study also examines time-dependent contributions of selected asset classes to farmland and timberland REIT volatility. Design/methodology/approach: The authors use a multi-factor asset pricing model under a seemingly unrelated regression framework to evaluate farmland and timberland REIT returns, and a state-space model with the Kalman filter to evaluate the time-dependent contributors of farmland and timberland REIT volatility. The authors first perform orthogonalized regressions to obtain pure independent factors, and then decompose volatility into individual asset components. Findings: Significant loadings on financial assets are found for both farmland and timberland REITs, suggesting that they are generally driven by some common state variables. Large-cap stocks are found to be the major contributor of farmland and timberland REIT volatility, despite some differing patterns over time. Originality/value: Empirical analysis of farmland REIT is very scarce. The authors compare the risk-return characteristics of farmland and timberland REITs under a state-space framework with the Kalman filter. This study can improve the understanding of the roles of farmland and timberland REITs in a multi-asset portfolio.

Duke Scholars

Author Bin Mei Environmental Sciences and Policy