The relationship between stand characteristics and investment risk and return in loblolly and slash pine plantations
Hancock, Thomas Clay
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Over the past decade, timberland has increased in popularity as an alternative investment, due to it's diversification potential when combined with stocks, bonds, and other traditional investments. New investors are continually entering the timberland market and interest in pine plantation investments should continue to grow. For this reason, relationships between risk, return and southeastern pine plantation characteristics were investigated by modeling the return to variability ratio, RV, or average annualized return divided by annualized standard deviation multiplied by 100, against pine plantation characteristics. Pine plantation characteristics' impact on efficient timberland portfolio construction were also investigated. RV was significantly influenced by initial investment age, site index and initial investment basal area. Species, slash or loblolly, did not seem to be important. While, thinned stands always displayed higher absolute values of RV, there is no significant difference in the response relationships between RV and the individual stand characteristics. Stand characteristics' impact on efficient portfolios were as follows. Due to high correlations between all timberland assets, there is very little risk diversification potential. However, improved investment performance can be achieved by selecting tracts based on age class, site class, and thinning status. Assets involving thinned stands were highly preferable and dominated the selection process.